05-08-2025
Why Nvidia is the biggest risk to the stock market—not tariffs
Nvidia has lost half its market value seven times since going public in 2000.
While worries persist over the impact of shifting trade policy and higher tariffs on markets, the bigger risk may be the hundreds of billions invested in artificial U.S. stocks have forged new highs despite rising geopolitical risks. For Louis Gave, head of investment and research firm Gavekal, the worry is how dependent markets have become on AI spending—and one of its main beneficiaries, Nvidia.
Since the release of ChatGPT in 2022, U.S. total market cap has expanded by $23 trillion—more than the market caps of Japan, Europe, and the U.K. combined, Gave wrote in a note to clients Monday.
Though the capital spending on AI—about 11% of GDP—isn't as extreme as the tech boom in 1999, Gave sees parallels. Over seven years in the 1990s, capital spending rose from 8% to 11.5% of GDP. The consensus view had been that growth was structural and companies would have to buy computers and spend on broadband and e-commerce. But the spending did eventually stall, causing stocks to tumble.
This time the surge in AI-oriented spending is shifting the traditionally asset-light businesses of Microsoft, Meta, and Alphabet into being asset heavy. Nvidia has been the biggest sees the possibility that the hundreds of billions of dollars invested in artificial intelligence turns out to be a dud as the bigger risk for markets. He posits the recent disappointment in semiconductor-equipment manufacturing stocks could foreshadow trouble ahead.
While Tokyo Electron last week said the outlook for cutting-edge chips—such as Nvidia's—remained strong, Gave notes the company's warning that demand from logic manufacturers had markedly weakened. ASML in mid-July offered a similarly sober outlook and warned it couldn't guarantee 2026 growth amid tariff uncertainty.
Gave sees a couple reasons behind these warnings, including the impact of higher tariffs and threats making Asian companies hesitant to spend billions of dollars when they are unsure if the rules of the game will change on them, Gave says. It is possible consumers could be rethinking spending, with Tokyo Electron noting softness in global sales of mobile phones, laptops, and personal computers.
It could also be the semiconductor capex cycle is starting to feel the weight of the China embargo, Gave says. China has spent aggressively in recent years to build its own semiconductor supply chain and reduce its reliance on foreign inputs, but now in many subsectors, China is pushing ahead faster than most anticipated, Gave says.
While the stocks of other companies have suffered, Nvidia has continued to forge higher. Gave is concerned what happens to the market when Nvidia, with its $4.2 trillion market cap, disappoints. He notes Nvidia has lost half its market value seven times since going public in 2000.
The fallout from a repeat could be far-reaching. Gave notes the aggregate wealth of consumers everywhere has burgeoned amid the boom in large-cap tech, U.S. megacap stocks, crypto, and gold—and a not insignificant part of that wealth creation is reliant on the premise AI ushers in a new era of productivity gains.
If those gains don't materialize or venture capital and big tech companies rethink the their expanding AI capital spending, Gave says the market could suffer a pullback in valuations that triggers a nasty negative wealth effect.
It could also fuel investor concerns about what could replace AI as a driver for both earnings and economic growth.
'The recent rollover in what had been a strong momentum trade for the tech boom feels like it could be a proverbial canary in the coal mine," Gave cautions.
Write to Reshma Kapadia at
