Investors are desperate to know whether Nvidia is in a $3 trillion bubble that's about to pop

• Investors are heading into Nvidia's annual shareholder meeting this week much less bullish.
• It has suffered a $431 billion wipeout since Friday after a rally reminiscent of the dot-com boom.

When Cisco became the world's most valuable company in March 2000, celebrations were short-lived.

The dot-com bubble had reached its limit, and despite previous forecasts that the Silicon Valley giant's hardware was vital to the internet's future, its value crashed 80% within the next two years.

Now, investors will wonder whether Nvidia faces a similar fate. The parallels are unnerving: Like Cisco, Nvidia became the world's most valuable company when it briefly surpassed Microsoft last week with a market capitalization of $3.34 trillion. And as with Cisco, investors hope its hardware is key to the online future.

After one of the most dramatic rallies in US stock-market history (it was valued at just $364 billion in January 2023), the chip giant's CEO, Jensen Huang, is set to host its annual shareholder meeting on Wednesday after it's already lost the title of the world's biggest company.

Since Friday, it has shed about $431 billion from its market capitalization, bringing volatility to a stock that has become one of the strongest indicators of AI mania.

CEOs like Sam Altman, Satya Nadella, and Elon Musk see Nvidia's chips, known as graphics processing units, as essential components in powering the generative-AI boom sparked by the release of ChatGPT.

But with Nvidia's fortunes suddenly turning after a record high, investors will be desperate to figure out whether the artificial-intelligence rally is about to end.

Nvidia faces tough questions

The release of ChatGPT in November 2022 triggered a generative-AI mania that has powered Nvidia's rise.

Last month, it reported record quarterly revenue of $26 billion for the first quarter of its fiscal year, up 18% from the previous quarter and 262% from a year ago.

In January, Mark Zuckerberg said he would have 350,000 of Nvidia's H100 GPUs — one of the company's most powerful offerings — by the end of 2024 as part of a broader stockpile of hardware to power Meta's AI ambitions.

CUDA, Nvidia's software platform, has a competitive advantage thanks to its extensive network of developers and ability to make GPUs as simple to use as a plug-and-play system, no matter how varied or complex a company's AI workload is.

But Nvidia's enormous influence has been enough to make investors worried.

The company has single-handedly contributed one-third of the gains made by the S&P 500 this year, raising concerns about whether a single stock should be responsible for so much growth.

Peter Bates, the portfolio manager of the global select equity strategy at T. Rowe Price, an investment-management firm, told The Wall Street Journal on Monday, amid Nvidia's falling stock price, that he's nervous about "the heft of Nvidia's market cap."

Manish Kabra, the head of US equity strategy at Société Générale, told the Financial Times on Monday that the market rally could broaden out but could also "form a bubble" in tech stocks "that we don't yet have."

For all the concerns, no one is questioning the demand for Nvidia's product. AI-first companies like Google, OpenAI, and Anthropic remain locked in an intense battle over the technology as they attempt to put out the best large language model.

That will require a lot of chips. But Nvidia faces a growing threat from competitors, such as the chip designer AMD, which is increasing its efforts to produce GPUs that rival Nvidia's.

But this didn't dampen predictions that Nvidia's rise would continue.

Analysts at Wedbush, including the Nvidia bull Dan Ives, predicted last week — before the sell-off — that the chip giant was still on course to reach a $4 trillion valuation.

"We believe over the next year the race to $4 trillion market cap in tech will be front and center between Nvidia, Apple, and Microsoft," the analysts wrote in a research note on Thursday.

Investors heading into Wednesday's meeting will wonder how much room Nvidia still has to run and whether its heady trajectory is about to end. They'll also hope history doesn't repeat itself.

More than two decades after its heyday, Cisco's market capitalization makes it the world's 64th-most-valuable company.