Jensen Huang works hard to dispel the AI bubble theory, market: "The shovel sellers won't say there's no gold in the mountains!" NVIDIA turns to decline during trading

Despite NVIDIA's third-quarter revenue soaring 62% year-over-year to $57.01 billion and providing strong guidance for the fourth quarter, investor concerns about an AI valuation bubble have not completely dissipated.

On Thursday, NVIDIA's stock price reversed and fell during trading, after the company's better-than-expected earnings report had initially driven the stock up by 5%.

After the earnings report was released, AI ecosystem-related stocks, including AMD and Broadcom, were initially boosted but then fell back with the broader market. Deutsche Bank analyst Ross Seymore acknowledged the strong performance but pointed out that the stock's "valuation is reasonable," maintaining a neutral rating.

NVIDIA CEO Jensen Huang candidly stated during the earnings call:

There is a lot of discussion about the AI bubble, but from our perspective, the situation is completely different.

This statement aimed to dispel market concerns. However, analysts believe it is unrealistic to expect Huang to acknowledge the existence of a bubble—no "shovel seller" would tell gold miners that there is no gold in the mountains.

Performance Exceeds Expectations but Controversy Remains

NVIDIA's earnings report exceeded the market's most optimistic expectations.

The company expects fourth-quarter revenue to reach approximately $65 billion, significantly higher than market expectations. More notably, Huang revealed in a speech in Washington that over the next six fiscal quarters, sales from just the Blackwell and Rubin product lines in overseas markets will reach $500 billion.

Ben Barringer, head of global technology research at Quilter Cheviot, stated that NVIDIA "attempted to refute almost every bearish argument" during the earnings call, covering various aspects including the law of large numbers, capital expenditures from hyperscale customers, and sovereign AI.

Wall Street Journal mentioned, for example, in response to market concerns about "circular financing" risks. Huang explained that strategic investments in companies like OpenAI and Anthropic are aimed at deepening technological cooperation, expanding the CUDA ecosystem, and acquiring shares in "once-in-a-generation" companies, rather than the market's concern about "circular trading."

Circular financing refers to NVIDIA investing in AI companies, which then use the funds to purchase NVIDIA chips.

Since the beginning of this year, NVIDIA has reached such deals with dozens of companies, including OpenAI, Microsoft, and Anthropic. In September alone, NVIDIA announced a $10 billion investment in OpenAI to support new data centers and AI infrastructure development.

Barringer stated:

They (NVIDIA executives) did an excellent job of pointing out every elephant in the room, every possible bearish argument, and provided their perspective.

However, this defense is seen as inevitable by some market observers. The analysis suggests that this is akin to a hardware store owner during a gold rush, who would never tell the prospectors, "There is actually no gold in the mountains." Even if there is indeed a bubble in the AI boom, Jensen Huang, as the biggest beneficiary, would not admit it.

The Debate on Bubbles Remains Unresolved

Investors' concerns about an AI bubble are not focused on this quarter or the next few quarters, but rather on whether capital expenditures can continue to grow in one or two years. These massive investments ultimately need to generate returns.

History provides some noteworthy references.

During the internet bubble, Cisco, as a global network equipment provider, was one of the most important "shovel sellers." Although Cisco's revenue growth did not reach NVIDIA's current level, it was still quite strong and even accelerated at one point, until it plummeted after the internet bubble burst.

Another reference point is Apple. After the launch of the iPhone, around 2011, Apple's revenue growth was comparable to NVIDIA's today. However, the difference is that when Apple recorded over 50% revenue growth, its 12-month forward P/E ratio was only about 12 times, far below NVIDIA's current valuation level.

NVIDIA has currently announced a quarterly dividend of 1 cent. Based on the pre-market stock price of $195.60, shareholders would need nearly 4,900 years to recoup their costs solely through dividends.

The analysis suggests that if AI investment is indeed a difficult-to-sustain bubble, one cannot expect Jensen Huang to admit it, nor will it be evident from NVIDIA's current performance or short-term outlook. The path of slowing growth will determine the performance of AI-themed stocks, but the causal relationship may also be the opposite—stock price fluctuations could in turn influence investment decisions.