Wall Street remains bullish, but some strategists see signs of an overheated AI trade.

Nvidia Corp., the undisputed leader in AI chipmaking, has surged more than 80% in just four months — adding approximately $1.9 trillion in market value and once again claiming the title of world’s most valuable company with a market cap exceeding $4.2 trillion. Yet, despite the optimism surrounding artificial intelligence, some market analysts are sounding the alarm: this rally may be getting too hot.

Overbought and Overextended?

The chipmaker’s 14-day Relative Strength Index (RSI) briefly topped 80 last Friday — a technical signal often seen as a warning of extreme bullish sentiment. The last time Nvidia reached similar levels was June 2024, shortly before a 20% correction.

AI Tailwinds Continue to Drive Demand

Since the AI-driven selloff in April triggered by U.S. tariffs and export concerns, Nvidia has rebounded sharply. Major clients such as Microsoft, Meta Platforms, and other tech giants have doubled down on AI investments, fueling investor enthusiasm.

A recent policy reversal by President Donald Trump’s administration — allowing Nvidia to resume sales of select AI chips to China — added fresh momentum. Bloomberg Intelligence estimates this move could help recover much of the $15 billion in data center revenue previously at risk from U.S. chip restrictions.

Adding to the bullish narrative, Trump also unveiled $92 billion in new AI and energy infrastructure commitments, while Meta’s CEO Mark Zuckerberg pledged “hundreds of billions” toward new data center buildouts.

Valuation vs. Reality

Despite the explosive gains, some institutional investors are taking a more cautious approach.

Nvidia is now trading at 34x forward earnings, up from a multiple of 20 in April. While this remains below its 5-year average of 40x, analysts are closely watching for signs of whether the fundamentals can keep up with the rally.

Nvidia’s rally has been nothing short of historic, fueled by real momentum in AI development and massive infrastructure investments. Yet, with RSI levels flashing caution and valuations climbing, even bulls admit that the stock may need to pause or consolidate before its next leg higher.

The future of AI is bright — but even the most powerful growth stories need to breathe.