It has been a rough week for Nvidia – the chip giant powering the AI revolution and just about every American’s 401(k) – and it’s not just recent headlines that are threatening the stock, On The Money has learned.
OpenAI Sam Altman helped spark a selloff in shares with his talk of “overexcited” investors and an artificial intelligence “bubble” – even as his company raised from investors $6 billion for a staggering $500 billion valuation. This week, short sellers reaped more than $5.6 billion betting against a basket of AI-focused companies that dropped, according to S3 Partners.
Indeed, some of these short sellers —- who make money betting against stocks —- have told me that investors who have feasted upon Nvidia’s near 1,300% run up over the past five years might want to take some profits – and sooner than most market players anticipate.
Jitters have been fueled by the flop of the latest ChatGPT rollout, possible layoffs at Meta’s AI unit and even an MIT study raising doubts about the potential of AI to goose corporate profits. But there’s another big worry lurking in the wings: the threat of dire electricity shortages. These short sellers claim Nvidia’s business will get whacked because of a simple, yet broad and intractable lack of power generation to light up its chips.
Yes, I know short sellers make money spreading doom and gloom; they borrow shares of a stock they don’t like, then sell them with the aim of buying them back later for cheap. Sometimes they’re right (see 2008 financial crisis). Sometimes they’re dead wrong (shorting Tesla about five years ago).
It’s also been my experience that most times they’re wickedly early, and disastrously so. Recall the run up in heavily shorted meme stocks that put a hedge fund out of business before the memes ultimately crashed – for all the reasons the shorts had warned about.
Nvidia is run by a very smart fellow, Jensen Huang. He doesn’t come across as hiding the proverbial football if his company were on the verge of an energy-triggered collapse. The Trump administration is energy friendly; it’s exploring the expansion of nuclear power and has jettisoned ESG mandates that slowed production.
That’s why if I were a betting man, I would say Nvidia could possibly fall in the right-but-early short scenario with the proviso that the extreme bear case is both treacherous and worth hearing out.
The people at the Bear Traps Report who monitor disruptive market trends, point out that Nvidia made $1.20 a share in 2024. Now, the Street is looking for earnings of around $4.40 a share in 2026 and around $6.00 in 2027. The people at Bear Traps tells me. It expects sales of $130 billion in 2025, $235 billion in 2026 rising to around $300 billion in 2027.
Pretty lofty goals, but maybe doable given Nvidia’s position as the chip maker best able to meet AI demand. As reported, Nvidia just inked a deal with the Trump administration to sell chips to China, even agreeing to pay the Trumpers a 15% fee for the rights. Its stock spiked on the news because the business is that lucrative.
But the Bear Trap folks warn the AI explosion will tax electrical grids across the world, juicing demand to levels that can’t be met with our current infrastructure. AI will face competition for power from Bitcoin miners and global warming (if you believe it exists) because a lot more electricity conceivably might be needed for air-conditioning on places like the North Pole.
Electricity per kilowatt hour is already spiking, up 35% since 2020 when the AI boom began. Nuclear power plants take years to develop. Windmills won’t fill the gap.
“Jensen has done a great job pumping up investors into the bull case, but he has an obligation to inform Nvidia shareholders on the risks to growth coming from energy bottlenecks,” said Lawrence McDonald of Bear Traps. “In our view he must warn investors ASAP.”
McDonald believes that the warning could come as early as next week when the company reports earnings.
Bob Sloan doesn’t buy the doom and gloom scenario hitting anytime soon. He runs S3 Partners, a data analytics company that specializes in tracking long (aka bullish) and short bets on stocks (Full disclosure: We cohost the “Risk and Return” podcast).
He says if markets saw significant data pointing to an Nvidia energy crunch you would see it at the very least with a spike in short interest in the stock. Current levels have spiked but just marginally.
Like me, he also thinks the shorts might be onto something in the longer term. Sloan’s research shows long bets being placed on companies that produce renewable energy, a tell that smart investors see demand outpacing supply for electricity given what’s happening in tech and crypto.
“That increased interest in renewables says we need to start producing more energy,” he adds.
