Nvidia Corp. is facing rising concerns that its stranglehold on the market for semiconductors used in artificial intelligence computing is slipping. And that skepticism is now showing up in the stock market.
Shares of the chipmaker fell 2.6% on Tuesday following a report suggesting that Alphabet Inc.’s AI processors are gaining ground. While the stock rose 2.2% on Wednesday, shares remain down 10% this month, erasing more than $500 billion in market value, as investors grow increasingly fearful of a bubble in AI spending as well as Nvidia’s circular investments in startups like OpenAI that are also customers.
The slump has left the chipmaker trading at less than 26 times profits projected over the next 12 months, down from about 34 times at the start of this month.
“Nvidia’s valuation was really based on the idea that it would maintain its market share,” said Adam Sarhan, chief executive officer of 50 Park Investments. “If it starts losing some market share, then investors will reassess what growth could look like, and what kind of valuation it should have.”
The stock is cheaper than the Bloomberg Magnificent Seven Index, which has a multiple of around 30, and it’s the worst performer in the gauge this month. Yet, Nvidia’s revenue and profit growth is far in excess of the rest of the group: Alphabet, Amazon.com Inc., Apple Inc., Meta Platforms Inc., Microsoft Corp. and Tesla Inc. This year, Nvidia’s revenue is expected to rise 63%, Meta is next among the Mag Seven at 21%.
That level of growth has the shares looking “relatively undervalued given the potential going forward,” Sarhan said.
Wall Street doesn’t seem particularly concerned about Nvidia’s trajectory, however. Profit estimates for its next fiscal year are up 12% from a week ago, and of the 80 analysts covering the company, 74 have buy ratings and only one rates it a sell, according to data compiled by Bloomberg.
Even the lone bear, Jay Goldberg of Seaport Global Securities, raised his estimates in the wake of Nvidia’s earnings report. But he still remains a skeptic.
“Nvidia’s numbers were good, and I moved my numbers up,” Goldberg said. “But supply constraints are starting to ease, and once you get to the point where you go from excess demand to excess supply, that’s a cycle-turning moment. I don’t think that’s happening in three months, but I think this happens in 2026.”
That competition is emerging should be no surprise to investors who’ve followed Nvidia’s ascent over the past three years since OpenAI unveiled ChatGPT. Its biggest customers have been hungry for a viable alternative to Nvidia’s top of the line AI accelerators that can cost more than $30,000 apiece. Those chips account for a large portion of AI-related capital expenditures by Alphabet, Meta, Microsoft and Amazon, which are expected to exceed a combined $400 billion in the next four quarters.
For years, the tech giants Nvidia counts as key customers have been working on developing their own silicon with the help of partners like Broadcom Inc. Nvidia’s nearest rival in AI chips, Advanced Micro Devices Inc., projects its AI business will generate “tens of billions” of dollars in annual revenue by 2027.
However, there have been few signs that any of this competition is eating into Nvidia’s sales. Last week, Nvidia forecast revenue will be about $65 billion in the current quarter, roughly $3 billion more than Wall Street was anticipating, with the vast majority of it coming from AI chips. That followed Nvidia Chief Executive Officer Jensen Huang’s prediction last month that more than $500 billion in sales are on the way in the coming quarters.
“We’re delighted by Google’s success – they’ve made great advances in AI, and we continue to supply to Google,” an Nvidia spokesperson said, echoing a post the company put on the social media platform X. “Nvidia is a generation ahead of the industry – it’s the only platform that runs every AI model and does it everywhere computing is done. Nvidia offers greater performance, versatility, and fungibility than ASICs, which are designed for specific AI frameworks or functions.”
To Nvidia bulls, the sense that Nvidia is so far ahead of the competition at a time when increasing resources are being devoted to computing infrastructure is the reason to believe the company’s future remains bright even as rivals try to chip away at its standing.
“Obviously the concern people have about a slowdown in growth is causing some to blink,” said Peter Tuz, president and portfolio manager at the Chase Investment Counsel, which counts Nvidia as its second-largest holding after Alphabet. “However, Nvidia’s growth is still strong enough that we have no problem viewing it as a growth stock.”
Tech Chart of the Day
Apple Inc.’s market capitalization is inching toward that of Nvidia’s, as the iPhone maker gets closer to reclaiming the title for the world’s most valuable public company.
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