Is the party over for Nvidia (NVDA +2.59%)?
The stock earned massive gains in 2023 and 2024 as its role in ChatGPT's artificial intelligence (AI) breakthrough made it the undisputed leader in the AI accelerator industry. So successful are its products that AI accelerators now generate nearly all of the company's revenue.
More recently, Nvidia pulled back from record highs following the news of the DeepSeek breakthrough earlier this year. And signs of falling demand and rising competition cast further doubts on the stock's near-term direction.
Do all of these doubts make the stock a sell? Let's take a closer look.
NASDAQ: NVDA
Key Data Points
How Nvidia stock looks now
Nvidia's current state arguably makes it look like a sell in the near term. Aside from DeepSeek's breakthrough in lowering the cost of AI, new challenges are emerging.
One is political, as rules imposed by the Trump administration could stop it from exporting some of its products to other countries. Another is competitive, since many of the company's largest customers have looked into designing AI chips in-house, which could bode poorly for the company.
Moreover, the state of one of its more prominent customers, Super Micro Computer, cast doubt on Nvidia's near-term prospects. Supermicro, which uses Nvidia's AI accelerators in many of its servers, cut its outlook amid what it calls "delayed customer platform decisions."
This is a problem for Nvidia, as the data segment that designs its AI accelerators accounted for $115 billion of the company's $130 billion in revenue in fiscal 2025.
The company's revenue increased 114% in the fiscal year, but its sales outlook for the first quarter of 2026 would already mean a deceleration to 65% growth, and the company may have to scale back such estimates further as customer demand falls.
That might mean its price-to-earnings ratio (P/E) of 36 is not the bargain it appears to be. And investors could rethink the company's valuation given the price-to-book ratio of 33, which is well above the S&P 500 average of 4.8.
Putting the Nvidia investment case into perspective
However, despite its challenges, investors have good reason to believe the pessimism is overdone.
For all of the concerns, AI demand remains high. Grand View Research estimated the compound annual growth rate (CAGR) for the AI chip market at 29% through 2030. So, even if industry growth faces a temporary disruption right now, it is likely to continue and possibly reaccelerate as the uncertainty recedes.
Moreover, Nvidia retains its dominant market share, particularly with the most advanced AI chips. Estimates place its market share as 85%, indicating that competitors are not having much success challenging the company.
Furthermore, companies that try to compete not only have to match Nvidia's Blackwell architecture but also must have an answer for its next-generation chip, Rubin, which it plans to release in 2026. Even if peers catch up to its less advanced chips, Nvidia is still likely to dominate on the leading edge.
Indeed, revenue hikes will slow since triple-digit increases are not sustainable over time. Nonetheless, growth is unlikely to stop, and that means net income can still grow rapidly.
As stated before, its P/E ratio is 36, and the estimated forward P/E of 24 indicates its profits will continue to rise. With a forward P/E so low, the continued increases should eventually take the stock higher, even if some of the worst fears about Nvidia's near-term future are realized.
Should I sell Nvidia stock?
Given the state of Nvidia, the party is probably not over, and the stock is more likely a hold than a sell.
Admittedly, investors need to brace for revenue growth to slow down rapidly. While the company and its investors have enjoyed triple-digit increases in recent quarters, it's unrealistic to expect Nvidia would ever continue that rate of growth in the long run. With more companies pausing their spending, it is unclear how rapidly that growth will decelerate.
However, such concerns are unlikely to derail its growth story over the longer term. As the company leads the lucrative AI industry, Nvidia should continue to drive outsize shareholder returns over time.
