Question: How would you react if you held Nvidia stock (NASDAQ: NVDA) and its value fell by 40% or more in the upcoming months? Before you say it – yes we know the chip giant’s stock just surged on tariff relief rumors – but that’s like a dead cat bounce. Under the hood, risks are piling up. Don’t be surprised if Nvidia tanks to $60 before another truly bullish rally takes over.
This contrarian view isn’t just gut instinct – it’s part of the macro-conscious, fundamentals-first philosophy that drives our High-Quality portfolio, which has outperformed the S&P 500 and achieved returns greater than 91% since inception.
Risks Are Piling Up For Nvidia
- Semiconductor Downcycle: JPMorgan and Morgan Stanley are ringing the alarm bells: the chip cycle is turning
- U.S.–China Tensions: Still haven’t cooled enough, with AI chips front and center in export bans.
- Cost efficient AI – China’s DeepSeek model – with software driven optimization – implies less demand for Nvidia’s hardware
- AI Bubble: Do we really need 20 ChatGPT clones?
What The Numbers Say
- Valuation risk: Trading at a P/E of 35 – well not outrageous but still rich for a company about to face tougher comps and margin compression.
- Margins have likely peaked: Gross margins above 70% are already unsustainable – any drop in ASPs or shift in product mix (say, from enterprise to lower-margin consumer AI) and we could see pressure.
- Technical Red Flag: In the last 5 trading sessions, Nvidia has not closed at a price higher than its opening price. This means that even 5% rallies are not what they seem to be – gap ups are getting sold off. Many investors are taking every chance to get out of Nvidia stock.
Nvidia’s History: Rally, Crash, Repeat
Let’s be real – Nvidia has a boom-bust pattern that’s hard to ignore.
- 2008: -85%
- COVID Panic: -38%
- 2022 Inflation Shock: -62%
Every time the hype gets too hot – whether it’s crypto, gaming, or AI – Nvidia’s stock overshoots and pays for it later. What makes you think it will be different this time?
Preserve & Grow Wealth With Risk-Focused Quality Portfolios
Nvidia is a classic example of how you have to bear extreme volatility while chasing returns. We combine different categories of stocks to lower the volatility while maintaining exposure to the upside in Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.