Gordon Johnson
Founder & CEO of GLJ Research
Falling AI token and compute prices are a perfect storm for Nvidia. Token costs are down about 30% since the start of June, falling on 15 of the past 18 days, while compute rental prices are 16% off their recent highs. The bull argument that this doesn't matter for Nvidia because the Silicon Token LLM index only tracks spot prices does not hold. x.comÂ
Nvidia should be pushed higher before its May 20 earnings by options flows, since volatility-targeting and vol-trigger funds have not yet built call exposure in size, unlike for Alphabet, Microsoft, Meta, Amazon and Apple, which report this week. The US equity market is mechanically decoupled, with index moves driven by options flows concentrated in a few mega-cap tech names rather than by fundamentals. x.com x.comÂ
Rising Chinese competition and doubts about valuations add to Nvidia's downside risk as the AI sector bleeds. Nvidia's break from an uptrending triangular pattern rarely ends well; the AI bubble is cracking, and the trendline break marks the beginning of something much bigger. x.comÂ
Nvidia's AI profits are real, but its compute demand depends heavily on fragile venture funding. Per Chamath, 1% of firms account for 90% of AI spending, and 72 cents of each dollar comes from unprofitable VC-backed firms. Venture money passes through startups to Nvidia and cloud suppliers; if the next raises fail, concentrated orders could contract together. x.com x.com x.comÂ
More AI tokens mean more compute demand for Nvidia even as pricing power starts to slip. OpenRouter data via the FT show weekly token use up ~250-fold since January 2025; the FT links the surge to agents' long call chains. Bloomberg's breakdown of a 1 GW AI campus that could cost roughly $30B puts well over half the bill in chips and servers, most landing at Nvidia as GPU racks. Servers wear out in 5-6 years, making AI capex a recurring chip refresh. x.com x.com x.com x.com x.com x.com x.comÂ
Lower AI token prices drive more usage, making GPUs scarcer and raising rental rates for neocloud capacity. Gavin Baker reports rising GPU rental prices even as token prices fall; the GPU constraint never left, and higher rental prices make the ARR math work again. x.com x.comÂ
Nvidia faces growing doubt over how much it must finance its own customers to sustain AI demand. It fell 5.1%, erasing about $256 billion, on reports it could backstop up to $250B for an OpenAI data-center project, effectively funding OpenAI to buy its products. CXMT's surging debut added worry about Chinese chip competition. Apple overtook Nvidia as the most valuable company as markets separate AI beneficiaries from firms taking aggressive financial risks to keep the cycle going. x.comÂ
Nvidia retains pricing power if its full system keeps reducing customers' cost per effective AI task. Strong AI demand alone does not ensure profits across the chain: rising chip, memory and optical costs burden buyers, while tighter financing and slow collections threaten operators. Large customers developing their own chips could pressure Nvidia's margins even as the market grows. x.comÂ
Nvidia's equity-investment book makes earnings vulnerable to an AI valuation downturn even if GPU sales hold up. Private and public stakes totaled about $99bn, or 31% of assets, in July; gains were $15.9bn in April and $7.8bn in July. Private holdings are marked on observable transactions or impairments, so losses could arrive in lumps. Nvidia generated about $127bn of free cash flow over four quarters, and the filing does not split private stakes by sector. x.com x.comÂ
Nvidia faces risks on both sides of the AI cycle. Vendor financing is a concern at the center of the buildout: strong AI sentiment brings competition, while weaker sentiment brings a slowdown. That makes it the largest holding of greatest concern. x.comÂ
Nvidia looks like the higher-quality AI exposure as hot inflation threatens cheap financing for data centers. Its selloff looks like a dip, unlike CoreWeave's debt-driven decline. AI is not going away, but cheap money is. x.comÂ
Cheaper AI tokens increase usage, which pushes up GPU prices as each dollar buys more intelligence. That is extremely bullish for AI infrastructure companies including Nebius, whose stock looks completely disconnected from its fundamentals, data, tailwinds and management commentary. x.comÂ
