Nvidia (NVDA +0.10%) stock seems to have shrugged off its doubters. After struggling earlier this year amid a generalized sell-off and fears of lower-cost competition, the stock is on the verge of returning to its all-time high.
That may have new investors wondering whether they should buy the semiconductor stock. Is there still an opportunity to earn market-beating returns from Nvidia, or have investors who didn't get in earlier missed the boat?
Image source: Nvidia.
What investors should know about Nvidia
Nvidia undoubtedly benefits from its lead in the AI accelerator market. Once known primarily as a maker of graphics processing units (GPUs) for gaming, it leveraged its cutting-edge parallel processor technology to springboard into the data center and AI markets.
That led to the development of the accelerators that allowed developers to bring generative AI to fruition. Consequently, 89% of its revenue in its fiscal 2026 first quarter (which ended April 27) came from its data center segment, which designs and sells its market-leading AI accelerators.
That was a remarkable shift, considering that the data center segment barely exceeded the revenue levels of the gaming segment three years ago. Its success also set off alarm bells across the semiconductor industry, and competitors such as Advanced Micro Devices scrambled to catch up ever since.
Even as peers work to close the gap, Nvidia continues to advance its chips. Its current top-of-the-line accelerators, such as the GPUs based on its Blackwell architecture, have enabled it to maintain its market dominance. Moreover, only Nvidia's chips can be programmed using its popular CUDA software ecosystem. That makes it more difficult for Nvidia's established customers to switch to competitors' hardware.
Additionally, even though it appears that developers are finding ways to train generative AI models using lower-cost chips, demand for Nvidia's most advanced accelerators remains strong. Grand View Research forecasts a compound annual growth rate (CAGR) for the AI accelerator market of 29% through 2033. When it comes to the AI inference market, that CAGR rises above 80%, according to AMD.
Thus, even if competitors can establish footholds in certain niches of this market, industry growth makes it unlikely Nvidia's peers will challenge its dominance.
Nvidia's financials and what they might tell us
Nvidia's financials reflect the industry's rapid expansion. In the first quarter of its fiscal 2026, revenue grew 69% year over year to $44 billion. While that was slower than its triple-digit percentage revenue growth in the previous fiscal year, the increase was unprecedented considering its $3.5 trillion market cap.
Still, a 211% increase in the cost of revenue slowed earnings growth. Though it still earned nearly $19 billion in net income, the rising cost of revenue took yearly profit growth to 26%.
For fiscal Q2, Nvidia expects revenue of approximately $45 billion, which would amount to a yearly increase of 50%. That estimate also accounts for an $8 billion revenue loss caused by export control limitations.
Investors should also remember that the stock price has risen by an astounding 1,450% over the last five years. Yet in the past 12 months, Nvidia stock is up by only 7%. Worries about low-cost competition and tariffs weighed on the company in the first half of the year, though the stock is approaching the record high it set in January.
NASDAQ: NVDA
Key Data Points
Confusion about how to value Nvidia may also be a factor in its stock price behavior. Its P/E ratio of 47 may appear inexpensive considering the company's still-massive revenue growth and its dominance in the AI accelerator niche. Still, its price-to-sales (P/S) ratio of 24 is high enough to lead to some concerns about whether its valuation truly is compelling.
Is Nvidia stock a buy?
Despite those questions about the stock's valuation, Nvidia is likely to beat the market over the long term.
Admittedly, competition in the AI accelerator market will probably continue to intensify.
Nonetheless, the high anticipated compound annual growth rate for AI accelerators is a bullish indicator for Nvidia, and it remains the most essential company in that space by just about any standard. Thus, even if growth rates slow, they are likely to remain high enough that Nvidia's stock price growth will outpace the S&P 500 for some time to come.
