Former Biden Adviser Explains What Concerns Him About NVIDIA (NVDA)-Led AI 'Bubble'

We recently published Top 10 Trending Stocks Everyone’s Watching in Q4. NVIDIA Corp (NASDAQ:NVDA) is one of the trending stocks everyone's watching.

Jared Bernstein, Stanford Institute for Economic Policy Research policy fellow and former Biden CEA chairman, said in a recent opinion piece that we are in an AI bubble. In an interview with CNBC, Bernstein said that while companies like NVIDIA Corp (NASDAQ:NVDA) are seeing real demand for chips, a bubble burst could impact a lot of retail investors who are entering the AI trade.

“The thing we’re concerned about is not so much that these companies, especially NVIDIA Corp (NASDAQ:NVDA), can’t defend their investments. It’s the extent to which regular mom and pop investors are getting into this bubble in a way that’s should it pop, if it pops, we could have a really large negative wealth effect. We’re talking hundreds of billions of dollars. This is the idea that you gain a dollar in stock market wealth, you spend an extra three cents. That’s the wealth effect. So what really took down the economy in the dot-com bubble was in part a wealth effect which was actually quite small. Any contraction in GDP there was minimal. This is a lot bigger. So we’re worried about the extent of investment relative to where we were back then and the extent to which should it pop it will hurt consumer spending, which kind of feeds into some already underlying fragilities in the real economy.”

Polen Focus Growth Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its third quarter 2025 investor letter:

“In early August we initiated positions in both NVIDIA Corporation (NASDAQ:NVDA) and Broadcom, after having not owned either company over the past 2½ years following the initial wave of enthusiasm around Gen AI. While we have long admired both companies, their highly cyclical business models have made it extremely difficult to forecast future earnings growth with any degree of conviction. Given our approach of seeking durable and persistent earnings growth that compounds over long holding periods, our concern in holding either was that we would be forced to endure a punishing downcycle within our typical holding period – there is very little room that in a concentrated portfolio of 20-30 companies. In fact, pre ChatGPT, NVIDIA had two punishing down cycles over the preceding five years.

That is specifically what has occurred for NVIDIA and Broadcom. While the sheer magnitude of demand for AI chips, servers and networking equipment was something that we clearly underappreciated, new incremental data points over the past few months lead us to conclude the current boom in AI chips and related hardware will likely continue for the foreseeable future giving us greater conviction over the trajectory of future earnings for both NVIDIA and Broadcom.

NVIDIA produces the fastest chips that are able to process compute intensive tasks like Gen AI training models extremely efficiently, are very flexible so can be used for any type of workload, and as a result are the chips in highest demand as the hyperscalers build out their Gen AI infrastructure (NVIDIA currently receiving 90c of every dollar spent on AI accelerated semiconductors). Their business has a very strong competitive moat, which is partly about the speed of their chips, but also the entire ecosystem they have built around them (programing language, training models and associated network effects)…” (Click here to read the full text)

While we acknowledge the potential of NVDA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an extremely cheap AI stock that is also a major beneficiary of Trump tariffs and onshoring, see our free report on the best short-term AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.