My Trading Game Plan Revealed - 11/12/2025: AI Chip Bubble Risk and Technical Topping Signals

In this morning's My Trading Game Plan, Gareth Soloway, Chief Market Strategist at Verified Investing, peeled back the layers of the prevailing AI narrative, revealing cracks in the fundamental story that the charts have been signaling for weeks. From a critical tweet by Michael Burry to the hype-fueled announcements from chipmakers, the session underscored a vital lesson for all investors: logic and charts are the ultimate arbiters in a market saturated with hype.

Today, we'll dive deeper into the fundamental questions surrounding AI stock valuations, explore the technical setups that demand a disciplined, non-emotional approach, and analyze the critical intermarket signals that could be forecasting the market's next major move.

The AI Chip Depreciation Dilemma

While the market remains captivated by the AI revolution, a significant fundamental issue is emerging that challenges the lofty earnings figures of the sector's biggest players. This concern was amplified by a recent social media post from Michael Burry, who questioned the accounting practices of hyperscalers regarding the depreciation of AI chips. As Gareth explained, this isn't just an accounting nuance; it strikes at the heart of corporate profitability.

"Hyperscalers are overestimating how long the life cycle is of AI chips. They're basically using the depreciation model of five to seven years… I did research on this just this morning and I found out that a majority of the depreciation of an AI chip is in two years."

Depreciation is an accounting method used to allocate the cost of a tangible asset over its useful life. For hyperscalers—the massive cloud computing companies buying AI chips by the truckload—these chips are assets. By spreading the cost of these chips over a five-to-seven-year period, they are taking a smaller annual expense on their income statement. However, if the functional, competitive lifespan of a chip is only two years, as research suggests, then this practice is, as Gareth put it, "artificially fraudulently inflating their earnings."

Consider the speed of technological advancement in AI. A chip that is state-of-the-art today will likely be vastly outperformed in 24 months. Research indicates that a new chip can lose up to 90% of its value within two years. By using a seven-year depreciation schedule, companies are essentially pretending these assets retain significant value for far longer than they actually do. This results in lower reported expenses and, consequently, higher reported earnings. This accounting choice paints a much rosier picture of profitability than reality might warrant and adds a significant layer of fundamental risk to a sector already priced for perfection.

Hype vs. Reality: Decoding Chipmaker Narratives

The chip sector is a masterclass in narrative management. This was on full display with AMD's recent investor day, where the company projected a potential addressable market of $1 trillion USD by 2030. While the stock popped 6% on the news, experienced traders know to greet such "grandiose proposals" with healthy skepticism.

"I call BS on this… ultimately we as investors must be smarter than that. And that's where I turn to the charts. I say, okay, well you're saying this, but are you just trying to lure me into buying the highs on your stock? Let's look at the charts."

This is the critical pivot from narrative to analysis. While headlines spread like wildfire, the charts offer an objective view. In AMD's case, despite the positive news, the stock still has a previous high to overcome to confirm a new bullish trend. More importantly, a significant price gap remains below the current price. In technical analysis, gaps often act as magnets, with price having a high probability of returning to "fill" them. The recent price action in Oracle serves as a perfect historical precedent, where a massive earnings gap was eventually filled completely.

This pattern of positive announcements often seems suspiciously timed. As Gareth noted, it feels like a "concerted effort to inflate a bubble and not let it pop." One day brings negative news like the CoreWeave sell-off or data centers being put on hold, and the next, another AI giant emerges with a record-breaking backlog or a new partnership. This constant churn of news is designed to create a sense of FOMO (Fear Of Missing Out) and keep capital flowing into the sector. For disciplined investors, the charts remain the most reliable tool to cut through this noise and identify true risk and reward.

Technical Topping Signals in Memory Chips

Beyond the headline names like NVIDIA and AMD, the broader semiconductor space is flashing significant warning signs. Memory chip stocks, which have experienced astronomical runs, are now exhibiting classic technical patterns that often precede major corrections.

Western Digital (WDC): This stock, with a market cap of $58 billion USD, put in a "topping tail" on the daily chart—a candle with a long upper wick, indicating that buyers pushed the price up significantly during the day, only for sellers to take control and push it back down by the close. Even more concerning is the potential for a weekly topping tail to form by the end of this week. As Gareth warned, "two topping tails on two different timeframes are extra pressure that the odds favor a move to the downside."

Sandisk (SNDK): Looking at the monthly chart of SNDK reveals a "three-bar surge"—a powerful, multi-month advance. While impressive, this pattern often leads to exhaustion. Technicians know that moves of this magnitude are rarely sustainable without a significant corrective phase. A pullback to the $200 USD level would be a healthy and probable retracement.

Seagate Technology (STX): This stock is another example of a parabolic advance, running from $64 USD to nearly $300 USD in just eight months. The chart shows price is now pressed up against a key parallel trendline resistance. After an attempted breakout failed to confirm, the stock is in a precarious position.

These are not small-cap stocks; they are major players in the tech ecosystem. Their extended charts and emerging topping patterns suggest that the bullish momentum is waning and that the risk is now heavily skewed to the downside for new buyers.

The Psychology of a Disciplined Trader

The temptation to chase these incredible moves is immense. Hearing about trillion-dollar addressable markets can make any investor feel like they need to jump on board immediately. This is where the wisdom of experience becomes invaluable.

"I've done that in my career early in my days. I would think that, oh, this is such a strong stock. I got to jump in on board… if you touch the stove, the hot stove enough, you get burned and you say, you know, I'm not going to do that anymore."

This is the core lesson that separates consistently profitable traders from the crowd. Trading based on emotion and hype is a losing game. The alternative is a disciplined, probability-based approach rooted in technical analysis.

Look at the current setup in NVIDIA. While the stock is bouncing, it's potentially forming a large head and shoulders pattern—a classic topping formation. But a "potential" pattern isn't a trade signal. The beauty of the charts is that they provide a clear, defined line in the sand. For NVIDIA, that line is the neckline trendline around the $184-$185 USD level. A confirmed close below that level signals a breakdown and a high-probability short trade. Until then, the trend remains intact. This objective approach removes emotion and guesswork from the decision-making process.

Crypto's Canary in the Coal Mine?

For months, Gareth has highlighted the relative weakness in Bitcoin and the crypto space compared to the roaring AI-fueled stock market. This divergence is becoming more pronounced and could be a critical leading indicator for broader risk assets. History provides a compelling precedent.

"In 2017, Bitcoin had that beautiful bull market, which topped out in December. In January, the stock market topped out four to six weeks later. In twenty twenty one… Bitcoin [topped] in November, in late December, the stock market topped out four to six weeks later. Well, guess what? We're now in the four to six window outside of when Bitcoin topped."

This historical cycle suggests that Bitcoin often acts as a barometer for speculative appetite in the market. Its failure to make new highs while the Nasdaq and S&P 500 have continued to climb is a significant non-confirmation. If this relationship holds, the stock market could be living on borrowed time.

This doesn't mean there are no opportunities. A disciplined trader looks for high-probability setups in any market. For Ethereum (ETH), a major multi-factor support level is forming around the $2,700 to $2,800 USD zone. This level represents a confluence of three independent technical factors:

1. A parallel trendline connecting major pivots.
2. A key area of prior price consolidation.
3. The 61.8% Fibonacci retracement level.

When multiple, non-correlated technical indicators converge at the same price zone, the probability of a reaction from that level increases dramatically. This is the type of high-quality setup that patient, professional traders wait for.

The Art of Navigating a Breakout

A common mistake traders make is assuming every breakout is an immediate buy. The recent action in Opendoor (OPEN) provides a perfect case study in why this is a dangerous assumption. The stock has broken out above a key trendline, which is a bullish signal. However, context is everything.

"This was $5 three days ago… It's now $8.45. So it's run up basically… 65% in three days. Am I really going to jump on a breakout now after it's gone up 65%? Heck no."

Buying here presents a terrible risk-versus-reward scenario. The stock is massively extended, and the risk of a sharp pullback is extremely high. A professional approach is to wait for a confirmation of the breakout's strength. This involves letting the stock consolidate above the broken trendline, perhaps pulling back to form a "bull flag" pattern around the $7.00 USD level. Buying into that constructive consolidation offers a much better entry point and a more manageable level of risk. A good trader doesn't just identify a breakout; they know when and how to act on it.

Conclusion: A Market at a Crossroads

The market is sending a complex mix of signals. On the surface, the AI narrative continues to drive indices higher. But underneath, fundamental questions about profitability are emerging, technical charts of key sectors are showing signs of exhaustion, and leading indicators like the crypto market are flashing warning signs.

This is an environment that demands discipline, patience, and an unwavering commitment to a probability-based trading plan. The hype from corporate leaders and the buzz on social media are noise; the true signal lies in the charts. By identifying multi-factor support and resistance levels, understanding the psychology of market manias, and waiting for high-quality setups, traders can navigate this challenging landscape with clarity and confidence. The game plan is clear: trust the data, respect the technicals, and never let emotion dictate your decisions.