Earlier this month, Michael Burry revealed a brief choices place on Nvidia (NASDAQ:NVDA) shares with a strike value of $110. The contracts expire on the finish of subsequent yr.
That’s 35% under the place the inventory is as I write this late on Friday (21 November). The agency reported robust Q3 earnings this week and the inventory initially rallied. Nevertheless it failed to carry these good points, so may $110 in 2026 nonetheless be on the playing cards?
Outcomes
Nvidia’s report was robust on nearly any metric. Revenues have been up 62% from the earlier yr at $57bn and earnings per share have been $1.30 – 60% larger.
The corporate’s expectations for the following quarter don’t present any indicators of the expansion fee slowing. The forecast is for $65bn in gross sales, which is 66% above the earlier yr.
Lots has been made lately about the way in which Nvidia buildings a few of its offers, particularly with the likes of OpenAI. And I’m aware of this after I take a look at the agency’s outcomes.
The likes of Alphabet, Amazon, and Microsoft, nevertheless, have been issuing debt to maintain shopping for extra of Nvidia’s GPUs. So it’d nicely be that there’s nonetheless extra to return.
Depreciation
A key motive for Nvidia’s progress is its means to maintain releasing new and improved merchandise. This creates recurring gross sales to firms who can’t afford to be left behind.
The agency insists that its new merchandise make the previous ones out of date fairly rapidly. However as Burry has famous, that is at odds with how its prospects account for his or her GPU investments.
Which may sound prefer it’s an issue for Nvidia’s prospects, not the corporate itself. Nevertheless it supplies an incentive for them to work on their very own chips – which is what they’re doing.
For instance, Alphabet has introduced that Gemini 3 is being skilled utilizing its personal TPUs. And if others observe swimsuit, there’s an actual danger for Nvidia’s repeat gross sales.
AI bubble
It’s in all probability honest to say the probabilities of Nvidia’s share value falling to $110 in 2026 elevated with the inventory falling in response to the agency’s earnings. However loads can occur in 12 months.
My sense is that the inventory market’s preliminary response to the corporate’s earnings report was extra aid than anything. And that’s as a result of traders know the dangers are actual.
Based mostly on analyst estimates for 2026, a $110 share value implies a price-to-earnings (P/E) a number of of 16. So for the inventory to commerce at that stage one thing huge must occur.
Nvidia appears prefer it’s in a robust place, however a part of the chance comes from its prospects with the ability to preserve shopping for. And in some instances, that’s a great distance from being assured.
What to do?
I believe traders want to think about being a bit cautious round AI shares in the meanwhile. Simply ignoring the indicators that issues are trying stretched is a dangerous transfer.
It’s price noting, although, that there are many different alternatives elsewhere within the inventory market. Even Burry’s final 13F disclosed quite a few lengthy inventory positions.
Given this I believe there’s an actual alternative to have a look at different shares in the meanwhile. AI may really feel like the one sport on the town, but it surely isn’t.
