The Red Flags Unfurl for AI Chip Stocks

March 31, 2025

| Sean Michael Cummings

"If I were investing money right now, I'd put it into artificial-intelligence stocks." That's what my 92-year-old grandmother Peggy told me earlier this month.

I always pay attention when my grandmother tells me about the stock market. That's because she's a terrific barometer of what not to do...

When folks who aren't in the markets bring you hot investing advice, it's often a sign of danger. My colleague Whitney Tilson called this the "cocktail-party indicator" in a classic issue of DailyWealth...

Whether it's your trainer at the gym, a neighbor who has never shown any interest in the markets, or the proverbial shoeshine guy... When you hear these folks talking about how much money they've made in bitcoin, 3D printing companies, or the latest hot IPO... run, don't walk, the other way.

I've found, again and again, that when the least knowledgeable investors among all of the people I know are piling into whatever is hot, it's usually very near the top of a bubble.

Unfortunately, the cocktail-party indicator is flashing for AI today. Noninvestors are more bullish on AI than ever – especially when it comes to chips and infrastructure.

And other worrying signals are starting to appear for this sector, too. Let me show you...

After my chat with my grandmother, I found some additional disconcerting AI hype. It came in the form of a Jensen Huang-themed breakfast item from Denny's...

If you've been following the AI boom, you likely know Jensen Huang. He's the CEO of Nvidia (NVDA) and has built the company into the undisputed king of AI infrastructure. If AI is being used, chances are, Nvidia chips are powering it.

His first job also happened to be at Denny's. That's why Denny's launched the Nvidia Breakfast Bytes to honor him earlier this month.

Denny's says the new menu item "pays tribute to Huang's remarkable journey from Denny's dishwasher and server to a tech titan."

Take a look...

Huang's story may be inspirational. But a breakfast company capitalizing on stock hype is a big red flag. It's another version of the cocktail-party indicator. And it's further evidence that AI bulls have gotten too comfortable.

Even worse, cracks are forming in the fundamental AI thesis...

China's new DeepSeek chatbot has produced ChatGPT-like results... with a fraction of the chips needed for Western AI models. This tempered the market's expectations for AI chip demand.

And last week, Microsoft confirmed its exited two major data-center projects in the past six months. According to a spokesperson, the tech giant is already "well positioned to meet current and increasing customer demand."

In other words, Microsoft doesn't need to build out more infrastructure right now. Demand is starting to hit a wall, even as hype for AI stocks continues to soar. That's a recipe for a serious repricing of AI infrastructure plays.

Folks are still chasing chip stocks today because they're hot. But what's good for the breakfast menu is probably not good for your portfolio.

Pay attention to the headwinds in the AI trade today. If you're like my grandmother and seeking to put money to work... I'd urge you to put your cash elsewhere.

Good investing,

Sean Michael Cummings

The Red Flags Unfurl for AI Chip Stocks

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