Nvidia's Record High Stirs Debate: Bull Case vs. Lehman-Style Risk

On Monday, Nvidia (NVDA) hit an all-time high intraday market capitalization of $5.78 trillion. Tech analyst Dan Ives believes that Wall Street's earnings forecasts for the company are likely 25% to 30% underestimated.

However, Nvidia, as the AI bellwether, tops a group of ten stocks representing roughly 39% of the S&P 500. Any decline would affect far more than just chip-focused shareholders.

How Strong Is the Bull Case for Nvidia?

Ives serves as a partner and senior managing director at merchant bank Yorkville Ives & Co. On CNBC's Closing Bell, he stated that checks in Asia indicate chip demand is running 13 to 14 times higher than supply.

"...it's the one chip in the world fueling the AI revolution."

Dan Ives made the comment on CNBC.

Michael Burry, the investor known for The Big Short, holds a different view. He reportedly holds Nvidia put options expiring in September 2027 and has said the AI bubble may burst ahead of schedule.

In contrast, Singapore's DBS Group informed Bloomberg that Nvidia is trading at 17 times forward earnings, compared with Cisco's multiple of 100 before the dot-com crash.

Could Nvidia Have Its Lehman Moment?

The case of Lehman Brothers illustrates how a single collapse can paralyze credit markets. The firm's $639 billion bankruptcy filing in September 2008 represented the biggest one-day market loss at that time.

Nvidia has been investing in its chip-buying customers. In August, the company disclosed preliminary agreements with six financial institutions for roughly $500 billion in customer financing, according to CNBC.

Consequently, a default by one of those customers could circle back to hurt Nvidia. A boom-bust funding gap signal had preceded both the dot-com and housing market collapses.

The dot-com crash offers a historical example of how severely tech stocks can decline. By October 2002, the Nasdaq Composite had dropped to 1,139 from its March 2000 high of 5,048. Enron's bankruptcy in 2001 brought down its auditor, Arthur Andersen. Similarly, lenders providing funding to Nvidia's customers might also suffer secondary losses.

Asia might bear the initial impact. South Korea's nominal output rose 26.4% year-over-year in the second quarter, driven by chip exports.

Ives might be correct about earnings. Yet the market's current risk does not solely depend on Nvidia's survival. It instead rests on whether the companies purchasing Nvidia's chips can continue to secure funding.