When the curtain closes on 2024 in less than two weeks, it’ll likely represent another banner year for Wall Street. The iconic\u00a0Dow Jones Industrial Average<\/strong>, benchmark\u00a0S&P 500<\/strong>, and growth-powered\u00a0Nasdaq Composite<\/strong>\u00a0have each ascended to multiple record-closing highs this year.<\/p>\n Though there have been a confluence of factors lifting Wall Street’s major indexes to uncharted territory, including better-than-expected corporate earnings, stock-split euphoria, and\u00a0Donald Trump’s November victory<\/a>, nothing is creating more buzz than the\u00a0artificial intelligence (AI)<\/a>\u00a0revolution.<\/p>\n The long-term addressable market for AI is practically limitless. Software and systems empowered with AI can become more proficient at their assigned tasks, and can evolve and “learn” without human intervention. It’s why the analysts at PwC estimate AI will\u00a0add $15.7 trillion to the global economy by the turn of the decade<\/a>.<\/p>\n In response to this generational opportunity, top-tier AI stocks have soared — and with good reason.<\/p>\n Wall Street’s monumental AI rally may come to a grinding halt in 2025. Image source: Getty Images.<\/p>\n<\/div>\n Nvidia<\/strong>\u00a0(NVDA<\/a>\u00a0-5.88%<\/span>)<\/span>\u00a0has gained nearly $2.9 trillion in market value since the start of 2023, with the company’s graphics processing units (GPUs) becoming the undisputed top choice in AI-accelerated data centers. Last week, AI networking solutions specialist\u00a0Broadcom<\/strong>\u00a0became just the\u00a011th publicly traded company globally to reach a $1 trillion nominal valuation<\/a>. Meanwhile, AI-driven data-mining specialist\u00a0Palantir Technologies<\/strong>\u00a0(PLTR<\/a>\u00a0-3.79%<\/span>)<\/span>\u00a0is nipping at the heels of a 1,000% gain over the trailing-two-year period.<\/p>\n These represent just some of Wall Street’s prominent tech stocks that have soared on the expectation that demand for AI hardware and software will change the corporate landscape.<\/p>\n But while Nvidia’s and Broadcom’s growth forecasts have knocked even the loftiest analyst expectations out of the park, there are reasons to believe the artificial intelligence bubble will burst in the new year.<\/p>\n Among the catalysts that could halt the nearly parabolic climb AI stocks like Nvidia and Palantir have enjoyed, none stands out more than history. Although history isn’t a timing tool, it does have an\u00a0immaculate track record of forecasting eventual downside<\/a>\u00a0in market-leading businesses on the cutting-edge of next-big-thing innovations.<\/p>\n Approximately 30 years ago, the internet began going mainstream and positively changed the corporate growth arc forever. However, the utility of the internet wasn’t fully understood by businesses for many years, which is why we witnessed the dot-com bubble take shape.<\/p>\n Since the advent of the internet, we’ve witnessed plenty of next-big-thing technologies, innovations, and trends, including genome decoding, 3D printing, blockchain technology, cannabis, and the metaverse. The problem is that they’ve all endured an early stage bubble-bursting event.<\/p>\n Without fail, professional and everyday investors have consistently\u00a0overestimated how quickly a new technology or innovation would be adopted and utilized<\/a>. This eventually leads to the disappointment that causes market leaders of these next-big-thing trends to lose 80% to 99% of their value.<\/p>\n To be clear, I’m not in any way suggesting AI can’t be a game-changing technology. What I am saying is that all new technologies and innovations need time to mature. The simple fact that most businesses can’t lay out a clear plan as to how they’ll deploy AI to generate a positive return on their investment is a pretty good indicator that we’re in a bubble.<\/p>\n Another reason the AI bubble can burst in 2025 is due to the\u00a0expected resolution of GPU scarcity that’s sent Nvidia’s stock into the stratosphere<\/a>.<\/p>\n Demand for Nvidia’s hardware has been otherworldly, with orders for its H100 GPU, commonly known as the “Hopper,” and its successor Blackwell GPU backlogged. When the demand for a good or service handily outstrips its supply, it’s normal for its price to climb. Earlier this year, Nvidia was commanding around $40,000 for its Hopper chip, which is up to a 300% premium to what\u00a0Advanced Micro Devices<\/strong>\u00a0was netting for its Insight MI300X GPUs.<\/p>\n In other words, Nvidia has been able to use AI-GPU scarcity to its advantage to increase the price point of its hardware and pump up its\u00a0gross margin<\/a>\u00a0to the mid-70% range.<\/p>\n However, I fully expect this scarcity advantage to wane in the new year. AMD is rapidly increasing production of its chips and recently introduced its next-generation MI325X GPU.<\/p>\n Additionally, many of Nvidia’s top customers by net sales are internally developing AI-GPUs to use in their data centers. Even though Nvidia’s chips should remain superior from a computing standpoint, these internally developed GPUs are going to be substantially cheaper and easy to access. It’s a recipe for Nvidia to lose valuable data center real estate, and\u00a0for its pricing power and margin to decline<\/a>.<\/p>\n Image source: Getty Images.<\/p>\n<\/div>\n Besides history not being on the AI revolution’s side, the AI rally could also be upended because of actions taken by U.S. regulators.<\/p>\n In 2022 and 2023, regulators under the Biden administration announced restriction on exports of high-powered AI chips and chip-related manufacturing equipment to China. This affects leading hardware producers like Nvidia, as well as the company’s providing the equipment to produce AI solutions. For instance, semiconductor wafer fabrication equipment company\u00a0Lam Research<\/strong>\u00a0generated 37% of its revenue from China during the September-ended quarter<\/a>, and 39% in the quarter before that.<\/p>\n Under President-Elect Donald Trump, it’s unlikely we’ll see these restrictions eased or lifted. Trump took a hardline stance toward the world’s No. 2 economy during his first term as president, and this is likely to continue when he takes office on Jan. 20.<\/p>\n To add, Trump has opined that he’d\u00a0impose a 35% tariff on imports into the U.S. from China on Day One<\/a>. More than likely, this is going to prompt a trade war that strains trade relations between the world’s two-largest economies and adversely affects AI product sales to China.<\/p>\n PLTR PS Ratio<\/a>\u00a0data by\u00a0YCharts<\/a><\/p>\n The final reason the AI bubble will burst in 2025 has to do with historically unsustainable valuation premiums that are currently being assigned to market-leading artificial intelligence stocks.<\/p>\n Over the last 30 years, businesses on the leading edge of next-big-thing innovations have often topped out at multiple of 30 to 40 times trailing-12-month sales. This is where\u00a0Amazon<\/strong>\u00a0and\u00a0Cisco Systems<\/strong>\u00a0peaked before the dot-com bubble burst.<\/p>\n In 2024, we’ve witnessed Nvidia top a\u00a0price-to-sales ratio<\/a>\u00a0(P\/S ratio) of more than 40, while\u00a0Palantir Technologies is currently pushing a P\/S ratio of almost 69<\/a>. Although it’s impossible to predict when investor euphoria will fade, history has been crystal clear that extended valuations of this magnitude aren’t sustainable over the long run.<\/p>\n Though businesses with sustained moats, such as Nvidia and Palantir, are deserving of a premium valuation, relative to their peers, price-to-sales ratios of 29 for Nvidia and nearly 69 for Palantir make no sense.<\/p>\n![\"\"](\"https:\/\/stateofthenation.info\/wp-content\/uploads\/2025\/04\/g.foolcdn-1024x682.webp\")
<\/p>\nHistory has a flawless track record of upending parabolic rallies in next-big-thing innovations<\/h2>\n
![\"\"](\"https:\/\/stateofthenation.info\/wp-content\/uploads\/2025\/04\/Screen-Shot-2025-04-11-at-8.51.09-AM.png\")
<\/p>\nRemoving GPU scarcity would quell investor euphoria (and margin)<\/h2>\n
![\"\"](\"https:\/\/stateofthenation.info\/wp-content\/uploads\/2025\/04\/Screen-Shot-2025-04-11-at-8.56.58-AM.png\")
<\/p>\nThe U.S. government can put the kibosh on the AI rally<\/h2>\n
![\"PLTR](\"https:\/\/media.ycharts.com\/charts\/9d6a57f12b2c3e339ecc582bce6cc128.png\")
<\/a><\/p>\nAI stock valuations are an eyesore that can no longer be ignored<\/h2>\n