As Nvidia reports earnings, Long Island financial experts urge caution on AI stocks

As investors in the AI space rejoice over the gangbusters performance of computer chip manufacturer Nvidia's third quarter earnings, Long Island experts caution local investors about concentrating on AI stocks alone despite renewed market enthusiasm. 

The release of Nvidia’s third quarter earnings, watched closely by tech investors around the world, has been touted by as a major bellwether for the overall health of the artificial intelligence industry.

The company, which designs and manufactures the graphics processing units, or GPUs, used by AI developers, reported revenue of $57 billion for the third quarter, up 62% from the same quarter last year, according to U.S. Securities and Exchange Commission filings.

Still, concerns about the potential for an industry bubble in AI have been on the minds of many market observers in the weeks preceding Wednesday's afterhours earnings news. 

“It reminds me a little bit of the dot-com bubble in that you have tremendous valuations and concentration in certain parts of the market,” said Craig Ferrantino, president of Melville-based Craig James Financial Services, on Tuesday. “There’s a lot of hype around artificial intelligence and I’m not so sure it’s warranted.”

But not everyone sees storm clouds ahead.

Nvidia, worth less than $400 billion three years ago, is the first company in U.S. history to surpass the $5 trillion market value mark.

Dan Ives, global head of tech research at Wedbush Securities, told Newsday earlier this week that fears of a bubble are “not warranted.” Nvidia, he said, is the “poster child for the AI revolution” and is poised to be the prime beneficiary of investment in the field over the next five years.

Amid the excitement — and the warnings — Long Island advisers highlight five things investors should understand before leaning into AI.

Who are the biggest public players in the industry?

While there are many companies developing AI, local advisers said the biggest names for investors remain Microsoft, Google, Meta and Nvidia.

“The players around AI are very well-integrated companies and have a lot going for them,” Ferrantino said. “You have Amazon Web Services… I don’t think that’s going to hell in a handbasket. I don’t think Microsoft or Google are going to hell in a handbasket.”

Why is Nvidia's earnings report so important?

Investors were fixated on Nvidia’s earnings report because the chipmaker has become the clearest gauge of whether the artificial-intelligence boom is beginning to slow or still has room to run. After years of explosive gains — with shares doubling in four of the last five years — recent volatility and rising concerns about a potential AI bubble have made Wednesday’s results a critical test.

Analysts say Nvidia now drives much of the broader AI trade, and its guidance will signal whether demand for AI computing remains strong or is starting to crack amid fears of overbuilding, heavy corporate spending and limited returns across the industry. As Wedbush’s Dan Ives put it, the earnings call was “the Super Bowl” for global tech investors — a moment to either calm bubble worries or intensify them.

Are fears over a bubble burst founded?

“You can’t necessarily say we’re in a bubble, but what you can absolutely say is the markets — if not overvalued — are probably fully valued,” said David Frisch, CEO of Melville-based Frisch Financial Group Inc.

While it isn’t clear whether the industry is in a bubble, advisers say several warning signs are emerging — starting with the large sums of money being borrowed by the biggest AI firms.

“You have massive, massive capital expenditures without a proven return on investment,” Ferrantino said.

Global bond sales have reached about $6 trillion so far this year, with a handful of firms responsible for a significant share of that borrowing, according to Business Insider. Alphabet, Amazon, Meta, Microsoft and Oracle have issued around $100 billion in bonds this year, Bank of America analysts found.

Others, like Mitchell O. Goldberg, president of Melville-based ClientFirst Strategy Inc., warn of what he calls a “hidden time bomb.”

With so much investment concentrated in AI, a downturn could ripple through portfolios even for people who don’t believe they hold AI stocks, he said.

“AI concentration is the new hidden risk,” Goldberg said. “Even if an investor thinks they don’t own AI stocks, they actually do, because the index funds and the biggest passively managed stock funds are stuffed to the gills with AI stocks.”

Despite companies collectively investing tens of billions into Generative AI, 95% have not seen a return, according to a July report from researchers at the Massachusetts Institute of Technology.

How will investors know if a bubble is about to burst?

“Everybody is looking for that telltale sign that this is a bubble and I’m going to get out now. Too bad it doesn’t exist,” Goldberg said.

Local advisers say there is no surefire way to know when a bubble is about to burst — and small dips can turn into major declines with little warning. Sustained drops, they said, may be the only reliable indicator.

“You never know you’re in a bubble until you’re actually in the middle of it,” Frisch said.

What should Long Island investors be trying to do?

Across the board, advisers say Long Islanders should resist the urge to chase AI stock performance and instead maintain diversified portfolios.

“The first thing is no one should be putting all their money in any one sector,” Frisch said.

Investors need to determine their own risk tolerance and decide, he said, “whether they’re comfortable trying to hit a home run and occasionally striking out, or if they would like to hit a lot of singles.”