Wall Street Trader for 27 Years: AI Bubble Will Burst! Bitcoin is No Longer "Sexy", Market Pullback is Just an Appetizer

Original text: David Lin

Compiled & Organized by: Yuliya, PaNews

History does not simply repeat itself, but it is always remarkably similar. In this episode of the well-known YouTube host David Lin, seasoned trader Gareth Soloway, who has witnessed the internet bubble and the 2008 financial crisis, will interpret the similarities between the current market and historical peaks. He believes that driven by the AI concept, market valuations are excessively overdrawn into the future, and a key turning point has arrived, with a correction of 10% to 15% being just the beginning. Gareth not only issues a warning for the stock market but also holds a cautious attitude towards the short-term trends of Bitcoin and gold, systematically explaining from multiple dimensions such as macroeconomics, industry insider information, and technical charts why he believes investors need to prepare for the impending market turmoil.

The relationship between AI bubbles, the labor market, and monetary policy

Host: There is no doubt that the current market is in a very interesting period. I noticed an article where former Trump senior economic advisor Kevin Hassett made a point that he believes artificial intelligence may be leading to a “calm period” in the labor market. He mentioned that despite strong GDP growth in the second quarter of 2025, companies may reduce the demand for hiring college graduates because AI has increased the productivity of existing employees. I have seen some reports that large consulting firms like McKinsey have also lost some business as clients turn to cheaper, more streamlined AI consulting firms. Do you think AI is the main reason for the rise in the stock market, but at the same time is causing a slowdown in the labor market?

Gareth: First of all, AI has undoubtedly played a role in driving the stock market up. Data shows that 75% of the S&P 500 index's gains over the past two years are directly related to AI concept stocks, and AI stocks have been leading the market higher. However, I do not agree that the current partial weakness in the labor market is due to the boom in AI. AI will eventually have an increasing impact on employment, but the real reason at the moment is the huge uncertainty in the business sector.

Of course, the stock market seems to be on the rise, but the reality is that people are still suffering from the pain of inflation, and I believe the actual inflation is higher than reported, which has led consumers to start slowing down their spending (as seen in the performance of Cava and Chipotle). The decrease in consumer spending has forced these companies to pause hiring.

Host: The Federal Reserve is about to stop quantitative tightening (QT) and may inject more liquidity through continued interest rate cuts. Do you think this will further drive up the entire stock market, in other words, will the AI bubble get bigger?

Gareth: I believe the AI bubble is at a turning point. I think the stock market has peaked and will at least see a correction of 10% to 15%. In fact, I mentioned earlier that a 10% correction might start in October, and the market indeed peaked at the end of October. Although the current drop from the historical high is not significant, I do believe that the downward trend has already begun. I want to talk about some of the reasons for this, as they are very noteworthy.

First, there are valuation indicators. The current valuation is based on bringing future revenue for the next 5 years (until 2030) or even further into the stock price, which means the price has anticipated earnings that have yet to be realized, and the risks are very apparent.

Secondly, we must talk about how funds flow back and forth. For example, AMD received billions of dollars in investment from OpenAI, but in return, AMD gave OpenAI warrants to purchase 100 million shares of AMD stock. Nvidia also gave OpenAI some money, allowing OpenAI to buy or borrow chips from Nvidia. This is somewhat of a typical “Ponzi scheme” aimed at maintaining this positive momentum, while the reality is that this ecosystem is not as stable as it seems. Many companies also acknowledge that “AI is great, but it's currently difficult to monetize.”

I do believe that AI is the future, but the question is, at this current juncture, is it really worth such a high valuation?

Another important issue is the data center. The construction of data centers is currently being put on hold. Remember, the surge in AI stocks is largely due to the need for all these data centers to be built, and they all require chips. But the key is that Microsoft has paused the construction of two data centers, and Micron has also paused one. Why? Because there isn't enough power. They must obtain power, and they can't simply draw from the existing grid, because doing so could triple the electricity bills for residents. So, if you divert all the energy to these data centers, it would actually crush the average consumer.

Finally, those hyperscale data center companies are using a depreciation period of up to seven years to calculate the value of chips. This is absurd. Data shows that due to the rapid advancement of technology and the high-intensity operation load of chips for two consecutive years, a chip purchased at full price is worth only 10% of its original value after two years. When you spread the depreciation over seven years, the annual depreciation amount becomes very small, making their financial reports look more profitable. But in reality, these hyperscale companies are severely overestimating their profits.

Host: The questions you've raised have indeed persisted for a while, but no one knows how long this situation will last or when it will stop. So as a trader, how do you make practical investment decisions based on this information? After all, most people may agree with your viewpoint, but they would also say, “We don't know when the music will stop.”

Gareth: This is precisely the scary part. If you ask the average person, most will say we are in a bubble, but they are still buying because they don't want to miss out on the opportunity for prices to rise and believe they can successfully exit before the market turns. This mentality was especially evident in the cryptocurrency market in 2021 and when other assets peaked.

Looking at the weekly chart of SMH (VanEck Semiconductor ETF), it essentially covers all major semiconductor companies such as Broadcom, Nvidia, AMD, etc. The yellow line represents the 200-week moving average. Looking back to 2020 and 2021, we can see a pattern of deviation from the relative weekly 200-week moving average: in the past, at the peaks, it deviated from the 200-week moving average by as much as 102%, followed by a significant correction of 45%.

In the data for 2024, the deviation also reached 102%, followed by a 40% pullback in the industry. Recently, SMH reached a deviation of 102% again a few weeks ago, indicating that the market may face new adjustment pressures. The 200-week moving average acts as the market's “base camp”; when the stock price deviates too far, it will eventually return. According to current data, the semiconductor industry may be facing a significant pullback.

Market Correction and Bitcoin Analysis

Host: This is indeed concerning because, as you mentioned earlier, the semiconductor industry is closely linked to other tech stocks and the broader economy, creating a phenomenon of cyclical financing. I suspect that if any large semiconductor stock drops, it could drag the entire market down. Do you agree?

Gareth: 100% agree. When 75% of the S&P 500 index's gains over the past two years have come from AI stocks, if these stocks fall, they will inevitably drag down the entire market. Moreover, you have to consider other factors. Currently, 90% of GDP growth expectations come from the capital expenditures of these large tech companies. Now imagine, if these big companies slightly cut their capital expenditures, the U.S. economy might fall into recession. So, we are on the brink of a potential correction that could be larger than expected. This precariousness in the stock market, especially in the tech sector, has already begun over the past few weeks. You've seen several very bad sell-offs, just last Friday, we experienced the largest single-day sell-off since April.

Host: You mentioned earlier a decline expectation of 10% to 15%, and some leaders of major banks have expressed similar views. Goldman Sachs CEO David Solomon also stated a few weeks ago in Hong Kong that the stock market is likely to experience a correction of 10% to 20% over the next 12 to 24 months. The CEO of Morgan Stanley agreed and believes we should welcome this possibility, as a correction of 10% to 15% is a natural part of the cycle and not driven by some macro cliff effect. They seem to think that such a magnitude of correction is quite common even in a bull market. So, structurally, do you still remain bullish?

Gareth: As a short-term trader, I have been more bearish recently, I have been shorting some stocks like Nvidia and SanDisk.

Let me show you this chart of the S&P 500 index, and I will demonstrate why we are likely to have reached a top. There is a clear trend line formed from the low point of the COVID-19 pandemic in 2020 to the low point of the bear market in 2022, and the S&P 500 index is currently touching the upper trend line parallel to the bull market high in 2021. Historical data shows that when the market touches the upper trend line of this channel, there have been bear market level pullbacks.

Based on this, I believe the correction has already begun, and the top of the S&P 500 has formed. The reason the market is currently oscillating is that those “buying the dip” investors have been brainwashed by large institutions, governments, etc., into believing that the market will never drop more than 2% to 3%. When a real correction of 10% to 15% comes, they will be very surprised.

Host: Which tech stock do you think is the most overvalued? You mentioned you're shorting Nvidia.

Gareth: I prefer to short the semiconductor industry broadly. I think shorting just before NVIDIA's earnings report is a bit risky, as it could always rise by $10 or $20 after the report and then fall again. Looking at the long-term valuation and technical aspects, there is a significant risk of a pullback.

I am also shorting and observing individual stocks that have moved very vertically last year/this year, including SanDisk—these weekly charts would reasonably need to pull back 20%-30%. I am not denying the fundamentals of these companies, but the technicals, valuations, and market structure pose very high short-term risks.

Also, remember that funds do not completely exit the market at the beginning of a top. In the early stages of a top formation, such as in 2007, we see a pullback, followed by a strong rebound, then another pullback, and another rebound, because buyers have been trained to buy on dips. The largest declines occur at the end of the cycle, when everyone gives up and falls into panic. Therefore, the early stages of a top formation are usually slow because there are still people continuously buying, but as prices drop, the speed of the decline will accelerate.

Host: Alright, let's turn to Bitcoin. We will return to Gareth later for his year-end prediction on the S&P 500. Bitcoin has now experienced a significant pullback, dropping below $100,000 and is currently below $95,000. What is your view on Bitcoin now and the key support levels ahead?

Gareth: From a professional perspective, this recent high point is actually quite easy to determine. We discussed a few months ago that if you connect the 2017 bull market high and the first high point of 2021, this trend line perfectly predicts each recent peak.

So it is clear that the white line here is the resistance level. If we can rise again and break through this line, then the opinions of those shouting absurdly high prices may become valid.

If the stock market falls and triggers panic, people unfortunately will still sell Bitcoin. Currently, the key support for Bitcoin is around $73,000 to $75,000 (many tops/breakout points support in that area). If the bears win the battle, Bitcoin could return to $73,000 to $75,000, or even lower. If the bulls can hold this line, we could return to $127,000, $128,000, or even $130,000.

Host: You mentioned the risks in the semiconductor field, and we know that Bitcoin and tech stocks are interconnected. Why do you think Bitcoin's performance has lagged behind many semiconductor stocks and the entire tech sector this year? Bitcoin has been basically flat this year, while the Nasdaq index continues to rise.

Gareth: There are several reasons:

• Bitcoin has recently become a “boring” asset. I know this sounds crazy, but when you see some chip stocks rising by 30%, 40%, or even 100%, they look like the new “altcoins” with ridiculous gains. In comparison, Bitcoin seems less “sexy”.
• Another factor is that we are starting to see institutional buying power is not as aggressive as before. Some crypto companies that had built Bitcoin reserves are now facing difficulties in financing, resulting in reduced buying. We have even seen this with MicroStrategy. Due to changes in loan conditions, MicroStrategy is unable to borrow the same level of funds for large-scale purchases as it did in the past. So, MicroStrategy is still buying, but the orders are much smaller than before.
• The last factor is de-risking. If you look back, risk assets tend to peak before the stock market does. Bitcoin peaked in December 2017, and the stock market peaked in January 2018. Bitcoin peaked in November 2021, and the stock market peaked at the end of December of the same year. When people start to de-risk, at least for large institutional funds, they first focus on the highest risk assets, which are cryptocurrencies. Therefore, the process of de-risking starts from there and then spreads to the stock market like a cold. I believe we are on the verge of seeing this happen.

Host: If Bitcoin and tech stocks have historically had a very close correlation, and Bitcoin has outperformed the stock market in past bull market cycles, but this time it hasn't, does this mean that Bitcoin is undervalued?

Gareth: I still believe that Bitcoin will ultimately outperform the stock market, as it remains a reserve digital gold asset. So when panic strikes and risk-off begins, prices will be impacted. But once the dust settles, people will realize that the stock market needs to drop more, and Bitcoin can become a recipient of some of that capital flow. I want to make it clear that I still believe Bitcoin could drop to $73,000-$75,000, or even lower, but I will gradually buy in during the decline to accumulate a long-term holding position.

Host: Are you more optimistic or pessimistic about the altcoin market?

Gareth: I have a cautious attitude towards altcoins. They are always changing, and there are always new hot technologies emerging. In my opinion, Ethereum still needs to drop a bit more, the range trading buy price I set for ETH is between $2800 and $2700, and this position is an important support point.

Gold, Risk Comparison and Long-term Outlook

Host: Let's talk about gold. Gold is currently still firmly above $4000 and is undergoing consolidation. Interestingly, I've noticed that videos about gold on my channel are starting to lose traction. A month and a half ago, when the price of gold soared above $4000, people were very excited. Now it has essentially formed a bottom around $4000, and my interpretation is that people have accepted this as the “new normal.” Is this the new normal? Is $4000 the new bottom price?

Gareth: Personally, I think there's still a bit of downside for gold, as the “weak hands” haven't been shaken out yet. The market typically tends to clear out these uncertain holders before starting the next bull market. Comparing the gold price trend in 1979 with that in 2025 shows a nearly similar pattern: first a wave of increase, then a consolidation, followed by several weeks of rising (in 1979, there were 9 consecutive weeks of bullish candles, and in 2025, there were also 9 weeks). Historically, the consolidation in 1979 only started a new wave of increase after retracing to a key support level.

According to analogy, I believe gold may drop to $3,600–$3,500 before starting the next round of significant rise. But importantly, this time is different from 1979. In 1979 and the 1980s, the then Federal Reserve Chairman Volcker was raising interest rates. Now, Powell is lowering rates. In 1979, the debt-to-GDP ratio was 32%, and now it is 130%. The current government is continuously spending recklessly. So the difference is that in 1979, it took us 20 to 30 years to see a new historical high again. This time, I believe we will return to a historical high by next year. Reaching $5,000 next year is without a doubt for me.

Host: In the short term, which asset has a greater downside risk: gold, Bitcoin, or stocks? If calculated by percentage, which one should drop more?

Gareth: In terms of percentage, Bitcoin has the highest volatility and the greatest short-term downside risk. If Bitcoin falls to my target price of $75,000 or $73,000, that would represent a drop of about 23% from the current level. If gold drops to around my target level of $3,600, that would be about a 12% decline. For the stock market, we discussed a pullback of 10% to 15%. This pullback would bring us back to around the 6,100 point level, which was the previous breakout pivot high and is now acting as technical support. The stock market is the most uncertain for me; it may be at a cyclical peak, and we could see declines of up to 30% to 40% in the coming years, although I believe there will be a rebound after a pullback of 10% to 15%. If I were to allocate, I would lean more towards gold at these mentioned target prices, as it is relatively the least risky, followed by Bitcoin.

Host: Why do you think gold is structurally better than Bitcoin?

Gareth: The main problem with Bitcoin is that there is a lot of leverage in the system. People can invest with large amounts of money. When entities like MicroStrategy hold so much Bitcoin and also use leverage, it worries me. As someone who makes a living analyzing trading risks, it definitely makes me a bit anxious. If they get into trouble and are forced to liquidate, they could cause a crash in Bitcoin that exceeds anything we have seen before.

And gold is more diversified, as central banks around the world hold it, and they won't panic sell; after all, central banks can print their own money. So ultimately, at least for me, the price of gold has more security.

Host: I want to share a post by Ray Dalio that echoes what you said earlier about “stimulus during a bubble.” He mentioned that the Federal Reserve announced the cessation of quantitative tightening (QT) and the commencement of quantitative easing (QE), and however you describe it, this is a form of easing. How do you think this will affect the market?

Gareth: I agree with Dalio's viewpoint: the Federal Reserve's technical shift in operations (stopping the balance sheet reduction and implementing quantitative easing or similar actions) is injecting liquidity into a system that already has existing bubbles. Historically, the pattern of increasing debt during expansion and deleveraging during recession has not occurred in this cycle — we have been continuously accumulating debt, which has created larger bubbles, and larger bubbles mean bigger crashes. The current situation may be even more severe than during the financial crisis, and I think many people find it hard to fully grasp its magnitude. The U.S. is approaching or entering a century-level problem, which will 'educate' many young investors who have never experienced a major crash. People often say that someone in every generation must go through one. Most of those who experienced the Great Depression are long gone, and we seem to have forgotten those lessons — be prudent with finances, avoid excessive consumption, and do not accumulate massive debts.

Host: What warning advice would you give to young traders who have not yet experienced a significant downturn or bubble burst?

Gareth: Stay vigilant. Many new investors entered the market after the COVID-19 pandemic, and since then, we have only experienced a V-shaped recovery, with the market hitting new highs within a month; they may think the market will only go up. I have been trading since 1999, and I remember it took the Nasdaq over 15 years to reach new highs. But history is not so, the market may take longer to recover. Protecting capital is key – trading with discipline, controlling risks, and being aware of the systemic risks brought by the current monetary and debt situation. At least 60%-70% of American households may already be in a state of economic recession, the market's rise has masked this reality; once the stock market falls, high-end consumption slows down, and in my view, regardless of how much AI capital expenditure there is, the economy will decline.