Concerns about an artificial intelligence (AI) bubble came to a head on Nov. 19 after Nvidia (NVDA 4.16%) CEO Jensen Huang addressed them directly on his company's earnings call.
After Nvidia smashed analyst estimates in its third-quarter earnings report, Huang told investors that there was still a long runway of growth for the company.
Once again, he reminded listeners that a transition from CPU general-purpose computing to GPU accelerated computing is underway, which greatly favors Nvidia, as it invented the GPU and still dominates the market for them today. Huang envisions the massive investment in non-AI software rapidly shifting to GPU-based AI software, which explains why companies are spending tens of billions of dollars on building out AI capacity.
Finally, Huang also predicted that the transition to agentic and physical AI will be "revolutionary, giving rise to new applications, companies, products, services."
Paired with the strong quarterly results, Huang appeared to make a convincing case for Nvidia, and the stock jumped after hours and in Thursday morning trading, up as much as 5% before sliding to finish the session 3%.
The Nasdaq Composite (^IXIC +0.10%) went from a gain of more than 2% in the morning to losing more than 2%, showing that Nvidia's report failed to assuage fears of an AI bubble.
Image source: Nvidia.
Where the weakness is in the stock market
A bubble refers to overly inflated asset prices, implying those prices will come crashing down. It's always fair to debate valuations in the stock market, but based on Nvidia's latest earnings report, as well as those of its big tech peers, it's hard to see any weakness in the performance of the companies leading the AI charge.
For the first time in several quarters, Nvidia's revenue growth rate accelerated, surprising analysts. The AI chip titan reported 62% revenue growth to $57 billion in the third quarter and sees top-line growth.
Palantir, another AI flag bearer, has reported accelerating revenue growth, reaching 63% in the third quarter, which included 77% revenue growth in the U.S.
Privately held start-ups like OpenAI and Anthropic that have seen their valuations soar are also seeing revenue soar, with revenue expected to reach a run rate of $20 billion by the end of the year.
Anthropic is guiding for $9 billion in run-rate revenue this year and sees it doubling or tripling in 2026.
However, outside the AI sector, things look much bleaker. We just finished a week in which three of the nation's biggest retailers made it clear that the consumer is suffering. Walmart and Target both noted an "affordability crisis," while Home Depot called out weakness among homeowners.
Despite falling interest rates, the housing market remains sluggish. Unemployment is rising. Inflation has remained stubbornly high, credit risk is increasing, tariffs are adding to the uncertainties, and younger consumers are struggling in particular, a phenomenon that's been dubbed the K-shaped economy.
Rather than an AI bubble, AI may be the only part of the economy that is thriving.
NASDAQ: NVDA
Key Data Points
What's next for AI stocks?
The AI sector is relatively insulated from the volatility in the economy. These companies have relatively few employees, and their customers tend to be deep-pocketed corporations.
However, stocks like Nvidia will be vulnerable to claims of a bubble, despite their strong results, because they have room to fall.
Still, that's different from the business struggling. Investors should be prepared for a continued pullback in Nvidia shares if concerns about the economy persist.
However, a pullback could present itself as a great buying opportunity for Nvidia and its peers, much like the crash in April proved to be.
