How Hard Will Nvidia Stock Get Hit If There is an AI Bubble Burst?

You’re probably growing tired of hearing about how AI has inflated a bubble in the tech sector or even the broad stock market. Indeed, valuations are quite high on select AI stocks that have gained high double-digit percentage points so far this year. And the S&P 500 is certainly skewing towards the higher end of the valuation range. But above-average valuation metrics do not necessarily mean that the stock market is about to blow up in devastating fashion, with tech stocks imploding as they did just a quarter of a century ago.

An AI bubble burst is a real concern, and it’s kept many investors on the sidelines

Indeed, many market participants probably weren’t even born when the lead-up to the dot-com bubble happened. And while there are a fair share of horror stories, I do believe that investors should take bubble talk with a fine grain of salt. Indeed, nobody can tell where the market is headed next and what AI is about to do to the broader economy. Can AI fall short of expectations, causing a sell-off in AI stocks over the near term?

Most definitely. But I’ve heard a lot of skeptical views of the current state of the market and growing doubts about whether AI can deliver or if it’s just paving the way for a repeat of what happened in 2000 and 2001. Go ahead and try to time the next market crash. But your timing will probably be off, and you may lose out more than if you just played the long game and didn’t frighten yourself with all the bearish bubble burst scenarios that could happen.

While I do think the AI revolution will mint some real winners at a faster rate than the internet boom 25 years ago, I also think there will be many losers as well that could get most harshly punished if the AI scene were to experience a painful correction or even a bubble burst. Personally, I think such a bubble burst would mostly be isolated to the tech scene, making diversification beyond the sector of utmost importance for investors who don’t want to feel the full extent of the downside swings once the tables do finally turn.

What would happen to Nvidia if AI stocks did crash?

If AI stocks did lead the meltdown or “valuation reset,” there’s no question that shares of Nvidia (NASDAQ:NVDA | NVDA Price Prediction) would take a big hit to the chin. The higher they fly, the more room there is to fall, after all. Right? Indeed, the big question for the AI chip firm is what happens when the AI prospectors already have their picks and shovels, with no need for more? Indeed, that’s a big question, especially as the AI scene looks to discover efficiency and safety track record gains instead of raw firepower and smarts.

I have no idea how the Nvidia boom will end. But I do think the name is riskier than your average Magnificent Seven stock, perhaps with the exception of Tesla (NASDAQ:TSLA). Either way, I wouldn’t be too surprised if NVDA stock were to experience another 35-40% “correction” if some event (think DeepSeek advancements on the road towards artificial general intelligence or superintelligence) were to cause an AI growth scare.

If a bubble burst were to be more vicious, I’d not be too shocked to witness a plunge in excess of 50%. Of course, another risk for investors is what happens if the AI boom accelerates further. Perhaps the next 50% drop could come after more than 100% in gains. In such a scenario, some investors may be left out of the next wave of the AI boom.