Black Swan author: NVIDIA's sharp decline on Monday is just the beginning, and future pullbacks could be two to three times greater

Nassim Taleb, the author of the book "The Black Swan," warned in a recent interview with Bloomberg that investors blindly chasing the AI craze on Wall Street face risks. The 17% painful sell-off that NVIDIA experienced on Monday is just the beginning, and future corrections could be double or even triple that decline:

This is just the beginning; it's people starting to adapt to reality. Because they now realize that it is no longer perfect — there are small cracks in the glass.

So far, investors have been too focused on one narrative: that NVIDIA maintains its dominance in the AI field and that the company's stock price will continue to rise. However, considering the industry risks, NVIDIA's drop on Monday was actually very small.

NVIDIA's plunge on Monday wiped out $589 billion in market value, marking the largest loss in U.S. stock market history. On Tuesday, NVIDIA rebounded significantly during trading.

Taleb is known for his bestselling book "The Black Swan," which explores the extreme impact of rare and unpredictable events. He currently serves as a scientific advisor at Universa Investments, a fund focused on tail risk hedging, providing insurance-like strategies to help investors protect their portfolios from severe market fluctuations.

Taleb was previously an options trader and is known in the industry for his pessimistic predictions, but his forecasts do not always come true. For example, at the beginning of 2023, he warned that many investors were not prepared for a high-interest-rate era, and assets might no longer inflate as crazily. However, since then, fueled by the AI investment frenzy, U.S. stocks have surged significantly.

However, Taleb and Universa Investments do not advocate for investors to completely exit the market and miss potential gains; instead, they suggest allocating a portion of assets in the portfolio to guard against sudden shocks.

Taleb stated that too many investors are blindly driving up the stock prices of AI-related companies, while they do not actually understand how the technology works or how to succeed. He described tech companies as "gray swans," as the market often underestimates the significant intraday volatility these stocks may experience.

Taleb also reiterated his concerns about the unsustainability of U.S. debt. He warned that if rising labor costs combine with aggressive tariff policies, it could trigger an "inflation explosion," and he believes that considering this risk, the bond market is not a wise investment target