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Investing.com -- Nassim Taleb, author of The Black Swan, has warned that the recent market selloff of Nvidia Corp . (NASDAQ:NVDA) could be a precursor to larger pullbacks for investors who have heavily invested in Wall Street's AI-driven stock rally. Taleb, a former options trader and renowned critic of conventional financial models, made these comments in the wake of Nvidia's 17% slump at the start of this week, which wiped $589 billion from the chip maker's valuation.
Taleb shared his views with Bloomberg News on the sidelines of the event known as Hedge Fund Week in Miami. He suggested that future market pullbacks could be two or even three times larger than Nvidia's recent drop. "This is the beginning of an adjustment of people to reality. Because now they realize, now, it's no longer flawless. You have a small little chip on the glass," Taleb told Bloomberg.
The sudden selloff was sparked by concerns that U.S. tech giants might not maintain their dominance in the field of artificial intelligence, following the emergence of DeepSeek. This Chinese AI startup has shown a lower-cost method for developing the technology, which investors see as a potential threat to the demand for and reliance on Nvidia's advanced chips.
According to Taleb, investors have been overly focused on the narrative that Nvidia's shares would continue to rise as the company maintains its dominance in AI. He described the recent market retreat as "very little" considering the potential risks in the industry.
Taleb, who also serves as a scientific adviser to Universa Investments, a hedge fund that offers protection from violent market events, has a reputation for his pessimistic outlook. In the past, he has cautioned about U.S. government borrowing becoming uncontrollable and warned investors in early 2023 about the potential pitfalls of an era of higher interest rates.
Despite Taleb's warnings, the benchmark U.S. equity gauge has risen nearly 50% since then, largely due to the frenzy for AI-related investments.
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