Last year was tough for stock markets with Wall Street crashing 20 percent and many expected further misery in 2023. Instead, US shares have rocketed, led by the country's booming tech sector and one company in particular.

There has been massive hype over generative AI following the success of the OpenAI’s ChatGPT site. Analysts claim robots will transform the economy, making businesses more efficient with the small downside of potentially destroying millions of jobs.

The excitement has put a rocket under silicon chip maker Nvidia whose shares have soared a stunning 230 percent this year.

Its total market capitalisation has more than tripled to $1.14trillion, making it a member of the coveted $1trillion club of companies along with tech titans Apple, Amazon, Google and Microsoft.

The Californian company designs crucial infrastructure for AI, such as graphics processing units (GPUs) and application programming interface (APIs).

Last week, it said it had doubled quarterly sales to $13.5billion, smashing through analyst forecasts of $11.2billion. The next quarter could be even better as Nvidia expects revenues to hit $16billion.

Profits have grown 843 percent in a year, from $656million to $6.2billion.

It's a stunning pace of growth.

Equity analyst Angelo Zino at CFRA has called Nvidia the "most important company to civilisation" because soon every enterprise will rely on the chipmaker, either directly or indirectly.

Many investors will be kicking themselves for missing out but they should approach the stock with caution as there's a danger that the hype over AI has outstripped the reality.

Instead of soaring even higher after last week's staggering results, Nvidia's stock actually dropped two percent.

Over the last five trading days, it is down 6.60 percent.

Wall Street traders are increasingly shorting Nvidia stock by placing bets that it will crash.

AXS Investments has launched a fund devoted to taking short positions against Nvidia, and attracted a whopping $100million so far.

Emma-Lou Montgomery at asset Manager Fidelity International says the Nvidia story may sound familiar to those who remember the dot-com boom at the end of the 1990s.

Back then, investors were getting steamed up about Cisco Systems, which was being touted as the crucial infrastructure provider for the internet revolution. “Whatever the internet became, we were told it would use Cisco switches and routers to become it.”

When tech stocks crashed in March 2000, Cisco's share price plummeted from a peak of almost $80 to just $10 in a couple of years.

More than two decades later it still hasn't fully recovered, trading at around $55.

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Lou-Montgomery says the same could happen to Nvidia. Its share price is now valued at 250 times earnings, which is 10 times the average stock valuation on the S&P 500 of just 25 times earnings.

In other words, it’s incredibly expensive.

Nvidia still has a brilliant opportunity to grow. Amazon, Microsoft and Google, which operate the giant cloud computing data centres used by AI, are placing huge orders for its chips.

So is China, but if the US authorities impose further tech export bans to the country, that source of income could dry up overnight.

Right now, nobody knows where the Nvidia share price will go next. It may be the most important company in the world, but increasingly, its shares are also among the riskiest.

AI hype has been a rare positive for investors, as inflation and rising interest rates put the global economy on the brink of recession.

If Nvidia's shares do crash the US tech sector will follow, as will stock markets all over the world. The frenzy over AI has gone too far and we may now be in bubble territory. The old investment rule applies. Don't believe the hype.