Nvidia's gross margin guidance suggests potential pricing pressures that could signal the end of the AI stock frenzy. While AI has been hailed as the next transformative innovation, Nvidia's dominance in AI-accelerated data centers may be facing challenges. The company has enjoyed overwhelming market share and demand for its chips, leading to a notable increase in adjusted gross margin. However, Nvidia's forecasted decline in adjusted gross margin for the next quarter indicates a shift in the pricing power they've enjoyed. Competitors like Intel and AMD are ramping up their efforts to challenge Nvidia's hardware monopoly, and major customers like Microsoft, Meta Platforms, Amazon, and Alphabet are developing their own AI-GPUs, reducing their reliance on Nvidia's offerings.

This, along with the potential flooding of the market with additional chips, may undermine the scarcity that has contributed to Nvidia's margin expansion. Additionally, historical trends suggest that overestimation of the adoption and utility of new technologies or trends often leads to a bubble-bursting event. While AI may hold long-term promise, the lack of a well-defined blueprint for how it will drive sales and profits in the near future indicates potential overestimation. Based on Nvidia's guidance and historical patterns, the AI bubble may burst sooner rather than later.