Artificial intelligence (AI) pioneer Nvidia (NVDA +2.48%) is the largest company in the world right now, with a market cap of around $4.5 trillion. The stock's stunning rally in recent years has been driven by Nvidia's dominance of the AI semiconductor market.
However, Nvidia's massive market cap, valuation, and the intensifying competition in the AI chip space are likely to weigh on the stock's performance in the coming year, according to Wall Street analysts. This is evident from the stock's 12-month median price target of $215, which points toward gains of just 19% from current levels over the next year or so.
For comparison, Nvidia's stock price jumped 33% in the past year. The price target suggests that its gains will taper off in the coming year. Is that indeed going to be the case? Or will Nvidia outpace those expectations and deliver bigger gains in the next year? Let's find out.
Image source: Nvidia
Nvidia is going to face stiff competition next year
Nvidia's revenue in the first six months of the ongoing fiscal year 2026 stands at almost $91 billion. The data center business produced just over $81 billion of the company's top line. Nvidia's data center revenue, therefore, is currently on track to hit $160 billion based on the segment's performance in the first half.
Assuming that's indeed the case, Nvidia's share of the AI data center accelerator market, which includes chips other than graphics processing units (GPUs) as well, will be 60% in 2025. That's based on Gartner's estimate that $267.5 billion worth of AI data center chips will be sold this year. To put things in perspective, Gartner points out that the market for AI accelerators was worth $140 billion in 2024.
Now, Nvidia's data center revenue in fiscal 2025 (which coincided with 11 months of 2024) stood at $115 billion. What this means is that Nvidia is indeed losing ground in AI chips. That's not surprising, as its competitors, such as Broadcom (AVGO +1.24%) and Advanced Micro Devices, are cornering a nice chunk of the incremental revenue opportunity that this space has presented this year.
Broadcom, for instance, was in the news recently for landing a huge contract from OpenAI to supply its custom processors for deployment in 10 gigawatts (GW) worth of AI servers from 2026 to 2029. Though the chipmaker didn't disclose how much revenue it is going to generate from this deal, one estimate suggests that Broadcom could see an added $100 billion to its top line during this three-year period, thanks to OpenAI.
NASDAQ: NVDA
Key Data Points
This development makes it clear that Nvidia, which was once the go-to provider of AI chips for anyone looking to train AI models and run AI inference applications, has some intense competition. AMD, meanwhile, has been selected to deploy 6 GW of its chips by OpenAI as well. AMD will start the deployment of its chips for the ChatGPT maker from the second half of next year, and this partnership represents a multibillion-dollar opportunity for the chip designer, which has been struggling for traction in the AI chip space.
It is easy to see that hyperscalers and AI giants such as OpenAI want to diversify beyond Nvidia. The likes of Marvell Technology and Broadcom are taking a bigger chunk out of the AI pie thanks to the growing demand for custom processors that are considered to be more cost-effective when compared to GPUs. Meanwhile, AMD's product development moves will reportedly help it close the technology gap with Nvidia next year.
As such, Nvidia competitors could continue to win a larger share of the incremental revenue opportunity in AI chips next year. That probably explains why analysts forecast its top line will increase by a relatively slower pace of 33% in fiscal 2027 (which will coincide with the majority of 2026) to $276 billion, following a stronger increase of 58% in the current one.
The slower growth next year could bring down the massive premium Nvidia stock trades at right now. The price-to-sales ratio is 28, which is significantly higher than the Nasdaq Composite index's sales multiple of 5.4. As such, it is easy to see why analysts expect only 19% upside from Nvidia in the coming year, as its median price target tells us.
But can the chipmaker spring a surprise?
The good part is that Nvidia seems capable of outpacing Wall Street's expectations thanks to its recent moves. For instance, the company recently announced a $5 billion investment in Intel, a move that could turn out to be fruitful for Nvidia, considering that it can now pair its GPUs with Chipzilla's central processing units (CPUs) to provide accelerated computing solutions.
Intel remains the leading player in the server CPU market with just over 70% in unit market share. This could open up a solid opportunity for Nvidia to expand its reach in the AI server space. Moreover, Nvidia is focusing on building sovereign AI infrastructure for several nations across the globe. For example, the company sees a 10x jump in GPU-powered AI infrastructure in Europe next year, up significantly from the 3x growth projected this year.
Nvidia points out that it expects its sovereign AI revenue to more than double in the current year to over $20 billion. This business could get much bigger in the future, considering that it is helping governments across five continents build AI infrastructure. Additionally, Nvidia's gaming business is also gaining impressive traction and has the ability to contribute significantly over the coming years. Investors shouldn't miss the opportunity in the automotive business either, where it sees a $300 billion addressable market.
So, there are multiple catalysts for Nvidia beyond data centers that could help it deliver higher upside than analysts are forecasting in the next year. Moreover, Nvidia itself sees another $3 trillion to $4 trillion worth of AI infrastructure spending through 2030, which could pave the way for further growth in its data center business.
As such, investors who are holding this AI stock right now can continue holding Nvidia, as the huge revenue backlogs of cloud infrastructure providers and the growth of the sovereign AI market could eventually allow it to clock faster-than-expected growth in 2026 and beyond.
