Pessimists on Wall Street widely believe that NVIDIA's future pullback could be two to three times larger than Monday's.
Nassim Taleb, the author of "Black Swan", warns that for those investors blindly rushing into the AI-driven stock market rebound, the brutal sell-off of NVIDIA stocks on Monday is just the tip of the iceberg.
Taleb stated during Hedge Fund Week held in Miami that future pullbacks could be double or even triple the 17% drop that NVIDIA experienced earlier this week. This decline caused the chip maker's valuation to evaporate by $589 billion, marking one of the most severe cases in US stock market history.
"This is just the beginning," Taleb said in an interview with Bloomberg News after the market closed on Monday. "People are starting to adapt to reality. Because now they realize that things are not perfect anymore, just like there's a crack in Glass."
The reason for the sell-off on Monday stemmed from investors' sudden concerns that the US technology giants may not dominate the AI field as expected. These worries emerged after the debut of DeepSeek, a Chinese AI startup that showcased a low-cost method for developing AI technology.
Investors fear this could threaten the market's demand and reliance on NVIDIA's advanced chips. Taleb pointed out that investors have been overly focused on the notion that as the company maintains its dominance in the AI sector, its stock price would continue to rise. He stated that given the risks in the Industry, Monday's drop in its stock price was actually "very small."
Taleb's bestselling book explores the extreme impact of rare and unpredictable events, and he is also a scientific advisor at Universa Investments, a tail-risk hedge fund that essentially provides a form of Insurance to help protect portfolios from significant market events.
The former Options Trading trader is known on Wall Street for his pessimistic remarks, but not all his statements have proven to be accurate. At the beginning of 2023, he mentioned that many investors were unprepared for the era of high interest rates, when assets might no longer "inflate crazily." Since then, the benchmark US stock Index has risen by nearly 50%, largely due to the frenzy surrounding AI.
Taleb and Universa's argument is not that investors should flee the market and miss out on these gains. They are only allocating a small portion of assets in the portfolio to hedge against unexpected shocks.
Taleb stated that too many investors have been driving up the stock prices of companies related to AI without properly understanding how the technology works or the details necessary for success. He described tech companies as "gray swans" because investors underestimate the price deviations their stock prices could experience in a single day.
At the same time, Taleb also reiterated his warning about the unsustainable debt burden of the USA on Monday. He expressed concern that the combination of rising labor costs and aggressive tariffs could lead to the danger of "inflation explosion", and stated that given this risk, Bonds "are not a wise investment."
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