Earlier this month, Michael Burry revealed a short options position on Nvidia (NASDAQ:NVDA) shares with a strike price of $110. The contracts expire at the end of next year.
That’s 35% below where the stock is as I write this late on Friday (21 November). The firm reported strong Q3 earnings this week and the stock initially rallied. But it failed to hold those gains, so could $110 in 2026 still be on the cards?
Results
Nvidia’s report was strong on just about any metric. Revenues were up 62% from the previous year at $57bn and earnings per share were $1.30 – 60% higher.
The company’s expectations for the next quarter don’t show any signs of the growth rate slowing. The forecast is for $65bn in sales, which is 66% above the previous year.
A lot has been made recently about the way Nvidia structures some of its deals, especially with the likes of OpenAI. And I’m mindful of this when I look at the firm’s results.
The likes of Alphabet, Amazon, and Microsoft, however, have been issuing debt to keep buying more of Nvidia’s GPUs. So it might well be that there’s still more to come.
Depreciation
A key reason for Nvidia’s growth is its ability to keep releasing new and improved products. This creates recurring sales to companies who can’t afford to be left behind.
The firm insists that its new products make the old ones obsolete pretty quickly. But as Burry has noted, this is at odds with how its customers account for their GPU investments.
That might sound like it’s a problem for Nvidia’s customers, not the company itself. But it provides an incentive for them to work on their own chips – which is what they’re doing.
As an example, Alphabet has announced that Gemini 3 is being trained using its own TPUs. And if others follow suit, there’s a real risk for Nvidia’s repeat sales.
AI bubble
It’s probably fair to say the chances of Nvidia’s share price falling to $110 in 2026 increased with the stock falling in response to the firm’s earnings. But a lot can happen in 12 months.
My sense is that the stock market’s initial reaction to the company’s earnings report was more relief than anything else. And that’s because investors know the risks are real.
Based on analyst estimates for 2026, a $110 share price implies a price-to-earnings (P/E) multiple of 16. So for the stock to trade at that level something big needs to happen.
Nvidia looks like it’s in a strong position, but part of the risk comes from its customers being able to keep buying. And in some cases, that’s a long way from being guaranteed.
What to do?
I think investors need to consider being a bit careful around AI stocks at the moment. Just ignoring the signs that things are looking stretched is a risky move.
It’s worth noting, though, that there are plenty of other opportunities elsewhere in the stock market. Even Burry’s last 13F disclosed a number of long stock positions.
Given this I think there’s a real opportunity to look at other stocks at the moment. AI might feel like the only game in town, but it isn’t.
