HX Weekly: July 28 - August 1, 2025

Hello reader, welcome to the latest issue of HX Weekly!

So, what's HX Weekly all about?

Each Friday, we bring you a new edition of HX Weekly that includes three distinct sections.

In the first section, Thoughts on the Market, we'll offer insights into current economic and market news.

In the second section, HX Daily Redux, we'll revisit investing concepts, tactics, and more from past issues of HX Daily.

And in the third section, Market Wizard’s Wisdom, we’ll share thoughts, quotes, and theories from the greatest investing minds of all time.

Now, let's dive in!

Thoughts on the Market

Time to Bet Against a Market Favorite?

As artificial intelligence (AI) continues to reshape industries, one group of companies has quietly become essential: the tech infrastructure builders.

These firms design and manufacture the high-powered chips and computing gear that make AI possible—from training language models to running autonomous systems and data centers. In a way, they’re the steel and railroads of today’s digital revolution.

But history has a warning for us.

Just as the railroad boom of the 1800s eventually went bust when supply overshot demand, we may be seeing a similar setup in today’s race to build AI infrastructure.

That brings us to today's opportunity: a tech giant whose massive success could be setting it up for a significant fall.

The Company at the Center of It All

Nvidia Corporation (NASDAQ: NVDA) is no secret.

Headquartered in Santa Clara, California, Nvidia was founded in 1993 by Jensen Huang, Chris Malachowsky, and Curtis Priem. The company went public in 1999 and gained fame for its gaming graphics cards.

Today, Nvidia is a $4 trillion tech powerhouse, leading the world in graphics processing units (GPUs), AI platforms, and advanced computing hardware. Its chips are the engine behind nearly every major AI data center build.

But could this dominant position actually make Nvidia vulnerable?

The Cisco Comparison: A History Lesson Worth Noting

Let's go back to the late 1990s to understand where Nvidia might be headed.

Back then, Cisco Systems and Juniper Networks were the must-own stocks. They were essential to building the Internet's physical backbone, just like Nvidia is now for AI.

Internet 1.0 vs AI, Incumbent Providers

Their stock prices soared as investors chased the dream of a digital future.

But then the dotcom bubble popped….

Even though the Internet kept growing, overbuilding and overspending crushed demand. These infrastructure stocks, priced for endless growth, collapsed when reality set in.

The same story may be unfolding again.

A Bubble in the Making?

Right now, cloud giants are investing tens of billions of dollars in AI. They’re not necessarily seeing strong returns yet—they’re spending to stay ahead and avoid falling behind. And Nvidia is the top beneficiary of this wave of spending.

AI Datacenters’ Massive Capex Parallels to Telecom Era

Its most powerful AI chips, like the H100 and Blackwell, have been sold out for months. But underneath the hype, we're seeing signs that things may be overheating.

Just like during the telecom boom of the early 2000s, when companies laid fiber faster than demand could keep up, we may be facing an overbuild in AI infrastructure.

Many companies are rushing to scale up before real demand arrives. And that’s risky.

The Risks for Nvidia Are Growing

If AI spending slows even a little, which is likely, Nvidia’s revenue growth could take a serious hit.

NVDA: Ascent in Revenue, Now on the Verge of Plateauing

The company’s valuation is sky-high, priced for near-perfect execution and endless growth. Its profit margins are still strong, but they’ve started to slip. Its price-to-earnings ratio (P/E) is still very elevated, suggesting that investors are pricing in flawless results for years to come.

But one small earnings miss, or a pullback in spending, could cause a major stock drop.

There are also geopolitical risks. U.S. restrictions on tech exports to China could affect Nvidia’s access to a key market.

We've seen this play out before. In the early 2000s, Cisco was still a great company, but the stock was priced for perfection, and it fell hard when the market woke up.

Nvidia could follow the same path.

History Doesn’t Repeat, But It Rhymes

The chart for Cisco during the dotcom boom shows what happens when hype gets ahead of fundamentals. Nvidia’s rise looks eerily similar.

With AI's market cap over $4 trillion, the stock assumes the company will stay the undisputed AI leader for a long time. However, rapid innovation and shifts in chip development, especially as companies like Microsoft and Google explore their in-house options, could change that quickly.

We're not saying AI is going away, far from it. But we believe Nvidia may have reached a dangerous peak in its stock price, just like Cisco did two decades ago.

That’s why here at HX Research, we believe NVDA’s bubble may be about to pop.

HX Daily Redux

Is Nvidia’s Reign Over?

We published a note on January 30, 2025 outlining some of the bigger picture aspects of our concerns about NVDA and why we thought it would loose 1 trillion in market cap.

Below is a chart showing when we published that note and when NVDA officially lost 1 trillion in market cap…

Today we are re-sharing that note in support of our above thesis on why we think the NVDA bubble is getting ready to burst, again…

One single chart is telling me that Nvidia's AI chip dominance is coming to an end...

That its undisputed reign as the AI king over the past two years might soon follow the path of IBM or Cisco — companies that once ruled their domains but have since become relics of their former glory.

To be clear, AI is not "over." In many ways, its story has yet to begin.

But we might be treading down a dark path right now — one that the media, analysts, Wall Street, and Main Street can't see.

A path that, ultimately, will lead Nvidia to a $1T loss in market cap.

In fact, I think it will happen sometime this year… probably in a single day.

It might sound crazy. But bold calls, backed by irrefutable evidence, are where the real money is made.

Now, this doesn’t mean that I think NVDA is a bad company, nor do I think it’s a short.

I simply think NVDA is in a difficult position with the tremendous growth it has seen in the demand for its product.

Let me explain…

A Blast from the Past

Nvidia has benefitted from one of the biggest capital expenditure cycles in the history of technology.

I was thinking about what’s going on with NVDA and what similar situations I had seen in my career.

As I was doing so, I saw a great note from my old friend Dan Ferris over at Stansberry Research. He mentioned a similar situation that neither of us was around for but was as impactful as artificial intelligence — the introduction of radio.

As he says it, every bubble has that ONE company that’s the “it” company for that moment. For radio it was Radio Corporation of America (RCA). This was the “picks and shovels” company of the rollout selling radios and parts to enthusiasts.

As Dan retells it, the first radio station started broadcasting in November 1920, and by 1929 there were nearly 700 stations across the country. Sales of radio equipment went from $60 million a year in 1922 to $842 million in 1929.

Just about any stock with the word “radio” in the name went soaring. Think of what happened with anything with the word “crypto” in it a couple of years ago.

RCA was the leader of the pack. It went from a split-adjusted share price of $1.17 in 1921 to $114.75 by 1929. That’s a 9,700% return!

Here’s the chart…

After the run up, it crashed back down to $2.62 by 1932. It didn’t reach that old high again until the 1960s.

This isn’t to say that NVDA is going to do what RCA did, but rather to point out that there are always big trends that will change the world and a company that is leading the way. When they go to the moon, though, you need to be careful.

While I wasn’t around for the advent of radio and RCA, I was around for what happened during the dot-com era. Folks forget that the primary catalyst for the boom was the literal physical build out of the internet.

Much like the radio era before, the demand for equipment to build the backbone of the internet was absolutely booming!

Telecommunications companies (whose stocks were soaring) were out there buying tons of equipment.

Many folks recently have been referencing what happened to the stock of Cisco Systems Inc. (CSCO) back then.

Dan points out that sales grew from $5 million in 1988 to more than $22 billion by 2001 — an incredible 4,000% increase! That was REAL demand.

When you grow revenue like that, you are likely to see a strong stock price. Here’s the stock chart from back then…

The stock peaked on March 27, 2000, at more than $80 per share.

I’m guessing you know what happened next, but here’s that chart anyway…

Almost 24 years later, and the stock has yet to reach those old highs.

Here’s an important chart that I want to share regarding CSCO, showing revenue growth from 1993 through the present day.

I spoke about the huge growth across the 1990s. But look at what happened at the end of this period — CSCO revenue went down.

It would continue to move higher and more than double. But for a three-year period it was going in the other direction.

Could this happen to NVDA?

It certainly doesn’t feel like it right now as the company is crushing numbers and growing like crazy. But I remember those CSCO reports back in 1999, and they felt the same.

Back then, CSCO was making the “must have” networking equipment as every telecommunications company on Earth scrambled to build out the internet.

These competitive companies would pay virtually anything at the time to get the equipment. In their mind, they couldn’t afford to be left out!

Eventually, they got enough equipment to build out what they initially needed. In fact, they built out much more than was initially needed and didn’t need to buy very much equipment for a while.

CSCO also built more capacity and was able to satisfy these customers. Unfortunately, they did so right as the customers realized that, in their excitement, they had built more than they needed in the near term.

In the meantime, competitors to CSCO who were way behind either caught up with better products or with attractive pricing. The product wasn’t as good, but it was a lot cheaper, more available, and “good enough.”

(Stop and read that again. This is what I think eventually happens to NVDA.)

It will still be a leader and likely see revenue grow multi-fold from these levels. It’s still an awesome company in an awesome area.

The market, though, catches up. Especially in an equipment area like semiconductors.

I recently saw an exhibit that puts the risk to NVDA in context.

The One Single Chart…

This table shows NVDA data center revenues as a percentage of the total technology capital spending in the United States. This is calculated from publicly available data.

On the table you can see how the NVDA spend compared to similar technology build outs. This table included the first wave of the computing build out with IBM in the late 1960s. It also includes the internet infrastructure build out we referenced above.

Both the IBM and CSCO situations ended very badly. The NVDA numbers are similar at this point.

Another exhibit I saw recently also gives me concern.

This table shows the capital expenditure spending by the big hyperscalers — Amazon, Microsoft, Meta, Dell, and Tesla. These are the companies spending the money on the NVDA chips to build out this next generation infrastructure.

On the table you can see how it grew in the last couple of years. This is what has driven the tremendous growth at NVDA.

The challenge is that looking at the public guidance of these companies for the next few quarters, it would imply that there would be a sequential decline in their spend.

This may not happen. These companies have consistently been spending more than their original guidance. At some point, however, they will spend less. It’s simply math.

If that happens in 2025, I think that NVDA stock is vulnerable. Even if the company simply beats the number by a smaller than expected amount, the stock could tumble. Investor enthusiasm is THAT high.

I think NVDA is a great company in a great position. But eventually, the stock is going to face some real challenges.

Be prepared.

Market Wizard’s Wisdom

An Unknown Oracle: The Wisdom of Ed Borgato

My life has changed significantly in the last five years as my career has evolved from that of a professional money manager to that of a writer.

When managing money full-time, I didn't spend much time thinking about my investment philosophy. It was well-defined and refined over many decades, and my time was spent executing that strategy.

There also was very little time to gather new wisdom from new sources.

That isn't to say that I thought I knew it all; rather, the learning process was driven more by the day-to-day operations of money management. We looked at the results and data and evolved our investment process accordingly.

One of the real pleasures (and surprises) of turning to writing is a return to active learning.

Part of that process is being introduced to great thinkers I was unfamiliar with.

One of these was recently introduced to me in a great note by my friend and colleague Herb Greenberg.

(By the way – have you checked out Herb's "On the Street" newsletter? Check it out here)

That author is a gentleman named Ed Borgato.

As Herb tells it, Ed began his career as a 19-year-old at Lehman Brothers and went on to become a broker and investment advisor before launching his hedge funds.

During that entire time, he also wrote a daily investment journal in which he chronicled his observations. I wish I had done the same!

He began posting these thoughts as an early Twitter adopter and a FinTwit community stalwart.

As we said – we don’t know much about Ed, but we DO KNOW that he has some great insights.

He still posts on X/Twitter but mostly posts his (awesome) insights from the past.

Here are some of our favorites…

This is one of our absolute favorites. The debate about "value" versus "growth" is one of the most useless in the financial media, which is saying something!

Don't worry about value or growth. Focus on finding GREAT companies at good prices, buy them, and then hold on for the long run.

This one made me chuckle!

Seriously, though, your goal as an analyst should be to find businesses that are so good that the government will eventually come after them for their success.

If you bought every one of those companies historically, you would be crushing the S&P 500.

This is an integral part of our “Plan the Trade, Trade the Plan” ethos.

You MUST have a plan, and you must be able to adapt that plan as the environment changes.

It all starts with being prepared before you go into the trade. Preparation is the key to winning.

One of our favorite sayings in technical analysis is “Price is Truth.”

You can never truly know why a stock is doing what it is doing, but you DO know what it is doing via the price.

Figure out a strategy that deals with the truth of price instead of trying to manufacture reasons for a stock movement.

This is an excellent insight for trading, investing, and life.

One key to success is to take whatever you LEAST want to deal with and deal with that first.

It is also great advice in relationships. Take the topic you do not want to talk about and start by talking about that first.

This one could be the MISSION STATEMENT for us here at HX Research.

We believe that most of what you hear from Old Wall Street is not helpful and exists only to justify their fees.

Anyone can become a good (or even great) investor. Do the work, find mentors, Plan the Trade, and Trade the Plan.

Finally – this last one…

Ed seems like a humble guy!

Please do yourself a favor and follow him on X/Twitter…

We hope that you’ve enjoyed this week’s issue of HX Weekly…

Do you have any thoughts, questions, or feedback? Tell us more in the comment section or at [email protected].