My 30k ft view is that the stock will inevitably slide as AI datacenter spending goes down. Right now Nvidia is flying high because datacenters are breaking ground everywhere but eventually that will come to an end as the supply of compute goes up.

The counterargument to this is that the "economic lifespan" of an Nvidia GPU is 1-3 years depending on where it's used so there's a case to be made that Nvidia will always have customers coming back for the latest and greatest chips. The problem I have with this argument is that it's simply unsustainable to be spending that much every 2-3 years and we're already seeing this as Google and others are extending their depreciation of GPU's to something like 5-7 years.

Additionally, they mentioned that customers can cancel purchases with little to no penalty and notice [2].

This is not unique for hardware companies, but to think that all it takes is just one company to get their sales down by 12% (14b$).

To cut to the point, my guess is that nvidia is not sustainable, and at some point one or more of these big customers won’t be able to keep up with the big orders, which will cause them to miss their earnings and then it will burst. But maybe i’m wrong here.

[1] https://s201.q4cdn.com/141608511/files/doc_financials/2025/a..., page 155: > Sales to direct Customers A, B and C represented 12%, 11% and 11% of total revenue, respectively, for fiscal year 2025.

[2] same, page 116: > Because most of our sales are made on a purchase order basis, our customers can generally cancel, change, or delay product purchase commitments with little notice to us and without penalty.

He's answering the question "How should options be priced?"

Sure, it's possible for a big crash in Nvidia just due to volatility. But in that case, the market as a whole would likely be affected.

Whether Nvidia specifically takes a big dive depends much more on whether they continue to meet growth estimates than general volatility. If they miss earnings estimates in a meaningful way the market is going to take the stock behind the shed and shoot it. If they continue to exceed estimates the stock will probably go up or at least keep its present valuation.

Presumably, inference can be done on TPUs, Nvidia chips, in Anthropic's case, new stuff like Trainium.

The only way the stock could remain at its current price or grow (which is why you'd hold it) is if demand would just keep going up (with the same lifecycle as current GPUs) and that there would be no competition, which the latter to me us just never going to be a thing.

Investors are convinced that Nvidia can maintain its lead because they have the "software" side, I.e. CUDA, which to me is so ridiculous, as if with the kind of capital that's being deployed into these datacenters, you couldn't fit your models into other software stacks by hiring people....

Maybe I’m missing something, but isn’t this just a standard American put option with a strike of $100 and expiry of Dec 31st?

For my two cents on the technical side, it is likely that any Western-origin shakiness will come from Apple and how it manages to land the Gemini deal and Apple Intelligence v2. There is an astounding amount of edge inference sitting in people’s phones and laptops that only slightly got cracked open with Apple Intelligence.

Data centre buildouts will get corrected when the numbers come in from Apple: how large of a share in tokens used by the average consumer can be fulfilled with lightweight models and Google searches of the open internet. This will serve as a guiding principle for any future buildout and heavyweight inference cards that Nvidia is supplying. The 2-5 year moat top providers have with the largest models will get chomped at by the leisure/hobby/educational use cases that lightweight models capably handle. Small language and visual models are already amazing. The next crack will appear when the past gen cards (if they survive the around the clock operation) get bought up by second hand operators that can provide capable inference of even current gen models.

If past knowledge of DC operators holds (e.g. Google and its aging TPUs that still get use), the providers with the resources to buy new space for newer gens will accumulate the amount of hardware, but the providers who need to continuously shave off the financial hit that comes with using less efficient older cards.

I’m excited to see future blogs about hardware geeks buying used inference stacks and repurposing them for home use :)

I don't typically buy stock to flip it right away; I have some Nvidia stock that I bought the day after ChatGPT was launched, and I bought a bit more when it was $90/share about a ~year ago. If it drops to $100, then I'll still be in the black, but even if it drops to $50, I'm not going to worry because I figure that I can just hold onto it until another upswing.

Nvidia has been around long enough and has enough market penetration in datacenters and gaming that I don't think it's going to go bust, and I figure that it will eventually appreciate again just due to inflation.

LLM use age won't crash either, it might decline or taper off but it's here to stay.

My concern is better models that won't need a whole of GPU, or China comping up with their own foundry and GPUs that compete. There is also the strategy issue, can Nvidia's leadership think global enough? will they start pursuing data centers in europe, latam, asia? can they make gpus cheap enough to compete in those regions?

The way things are, lots of countries want this tech local, but they can't deny the demand either.

Europe for example might not want anything to do with American AI companies, but they still need GPUs for their own models. But can Nvidia rebrand itself as a not-so-american-but-also-american company? Like Coca Cola for example. i.e.: not just operate in europe but have an HQ in europe that has half their execs working from there, and the rest from california. Or perhaps asia is better (doubt)? either way, they can't live off of US demand forever, or ignore geopolitics.

My personal opinion, having witnessed first hand nearly 40 years of tech evolution, is that this AI revolution is different. We're at the very beginning of a true paradigm shift: the commoditization of intelligence. If that's not enough to make people think twice before betting against it, I don't know what is. And it's not just computing that is going to change. Everything is about to change, for better or worse.

Most people buy low-strike puts as insurance against catastrophic market events.

Since catastrophic crises are rare, the price of these puts is quite low. But since many people fear a crisis, the price is very inflated over the actual probabilites. Which is why there are lots of people selling those puts as a business. These guys will bite the dust in case of a major crisis, but will make a ton if the market stays afloat.

Realistically, the current US government is so obsessed with its image that it will do everything to avoid a market crash during its term. The president has been pushing for lower rates for a while, and he's likely going to succeed in removing the head of the Fed and do just that. Lowering interest rates is just another way of pumping investment.

NVidia is definitely not going below $100 in 2026.

There's a bet here on profitability and it needs to play out.

How long do investors normally wait to see if a bet on new technology is a winner? I imagine that's quite arbitrary?

The poster child for this is Tesla. Nothing fundamental justifies Tesla's valuation.

IMHO the only rational way to look at the future of AI and the companies from profit from it is to look at geopolitics.

The market seems to have decided there's going to be one winner of the AI race. I actually don't think that'll be OpenAI. I think it'll be Google or Nvidia of the companies currently in the race. But I also don't think it'll be either of them.

The magic of software is that it is infinitely reproducible. That makes it difficult to build a wall around it. Microsoft, Facebook, Apple and Google have successfully built moats around their software very successfully in spite of this. Google's big advantage in the AI race is their ability to build and manage data centers and that they'll probably end up relying on their own hardware rather than NVidia.

I think China will be the AI winner or they'll make sure there is no winner. It's simply too important to them. For me, DeepSeek was a shot across the bow that they were going to commoditize these models.

The US blocked the export of the best lithography machines AND the best chips to China. IMHO this was a mistake. Being unable to import chips meant Chinese companies had no choice but to make their own. This created a captive market for China recreating EUV technology. Chinese companies have no choice but to buy Chinese chips.

The Chinese government has the patience and infrastructure for recreating ASML's technology and it's an issue of national security. And really all it takes is hiring a few key people to recreate that technology. So Western governments and analysts who said China will take 20+ years to catch up (if they ever do) simply don't understand China or the market they're talking about.

They sound exactly like post-WW2 generals and politicians who thought the USSR would take 20+ years to copy the atomic bomb. It took 4 years. And hydrogen bombs came even quicker.

There's a story that should get more attention: China has reportedly refused a deal for NVidia's latest chips [1]. If true, why do you think they're doing that? Because they don't want to be reliant on foreign chips. They're going to make their own.

[1]: https://ca.finance.yahoo.com/news/nvidia-stock-slides-china-...

Are they already "too big to fail"? For better or worse, they are 'all in' on AI.

I do hope they crash so that I can buy as much as possible at a discount.

Nvidia stock crash will happen when the vendor financing bubble bursts.

They are engaged in a dangerous game of circular financing. So it is case of when, not if the chickens come home to roost.

It is simply not sustainable.

Most options are actually used to hedge large positions and are rolled over well before the "due date". YOLOing calls and puts is a Robin Hood phenomenon and the odds of "fair pricing" are heavily affected by these big players, so using that data as some sort of price discovery is flawed from the get go.

> the theory of unbiased random walks assumes constant volatility throughout the year

No. I’m pretty sure it doesn’t. If you assume a brownian motion with a constant volatility as your stochastic process for computing the walk then of course vol is constant by definition, but you can use a stochastic vol process (eg Heston[1]), one with jumps or even an SVJJ process to compute the walk[2] if you want to. As long as you don’t have a drift term and the jumps are symmetrical the process will still (I think) be unbiased.

There are technical reasons why it may or may not be important to use stochastic vol, but if I recall correctly, it only really matters if you care about “forward volatility” (eg the volatility of Nvidia one year from some future point in time) which you would if pricing something that uses forward-starting options. Then the term structure of the volatility surface at a future date is important so you need a stochastic vol model. If you care about the price evolution but not the future volatility then you can validly make the simplifying assumption that jumps will cancel each other out over time and that volatility is a locally deterministic function of time and price (if not constant, which it obviously is not) and use something like a Dupire model.[3]

More significantly, implied volatility is just the market price of a particular option expressed in terms of volatility. This is convenient for traders so they can compare option prices on a like for like basis between underlyers without constantly having to adjust for differences in the underlying price, strike and time. Implied volatility is not actually the overall expected volatility of the underlying instrument. For that, you would have to fit one of the models above to market prices and calculate the expectation over all strikes and times. And that still is just the market’s opinion of the volatility, not an actual probability even if you apply the BoE adjustment thing he does in the article.

[1] https://www.homepages.ucl.ac.uk/~ucahgon/Heston.pdf

[2] “SVJ” means stochastic vol with jumps (ie discontinities) in the underlying price evolution. SVJJ means stochastic vol with jumps both in the price of the underlying and in the volatility. An example of this is the Matytsin model, which everyone just calls “SVJJ” but it’s not the only possible svjj model https://www.maplesoft.com/support/help/maple/view.aspx?path=...

[3] https://www.math.kth.se/matstat/gru/5b1575/Projects2016/Vola...

Everything that can't go on forever will eventually stop. But when?