2025 has been a banner year for Nvidia (NVDA 1.27%) investors. Shares in the AI hardware titan have soared by 32% this year, trouncing the S&P 500's comparatively measly return of just 15%.
That said, the generative artificial intelligence (AI) hardware boom is getting long in the tooth, leaving investors wondering if Nvidia can maintain its momentum in 2026.
Let's dig deeper to see what the future may bring for the stock.
Image source: Getty Images.
Nvidia is still a fantastic company
With a market cap of $4.3 trillion, Nvidia is the largest company in the world, and it didn't get to this point by accident. The chipmaker's continued success has relied on its ability to create a deep economic moat in an industry with a fair bit of competition. For the most part, this edge relies on Compute Unified Device Architecture (CUDA), which is Nvidia's proprietary software platform designed to allow developers to get the most out of its graphics processing units (GPUs).
Nvidia has been a pioneer in GPU technology since its founding in 1993. And this means a whole generation of developers has been trained on CUDA. It now boasts a vast ecosystem of tools and user knowledge that has given Nvidia a practically unassailable moat in its niche, even if products from rivals like Advanced Micro Devices (AMD) can deliver similar raw specs.
The generative AI boom allowed Nvidia to leverage the advantages it has been nurturing for decades, and business is booming. Third-quarter revenue soared 62% year over year to $57 billion, driven by the continued popularity of new data center AI chips such as the Blackwell series.
According to CEO Jensen Huang, compute demand continues to accelerate. And Nvidia plans to release a new class of GPUs called Rubin, designed to tackle AI video generation in late 2026. On the surface, everything looks fantastic. But there are some rising uncertainties.
NASDAQ: NVDA
Key Data Points
What are the challenges?
While Nvidia's business model is great for its shareholders, it doesn't seem ideal for its customers. Nvidia sells its hardware at tremendous markups. The entire company boasted a gross margin of 73.4% in the third quarter (popular products like Blackwell probably boast even higher margins). And these are the types of numbers you would typically expect to see in software companies that don't sell physical products.
Nvidia is maximizing profit, as it should. But its clients also have a fiduciary responsibility to reduce their costs if possible. And this dilemma might come to a head over the next few years -- especially as industry leaders like OpenAI continue to post eye-popping cash burn. The ChatGPT maker is believed to have lost more than $11.5 billion in its most recent quarter. And one analyst at Deutsche Bank thinks the problem could worsen, with total combined losses spiraling to $140 billion by 2029.
As a picks-and-shovels infrastructure provider, Nvidia can still win, even when some of its biggest customers lose. That said, the losses on the consumer-facing side of the AI equation suggest the industry foundations are very uncertain, which could eventually drive investors away.
Furthermore, more Nvidia customers are investing in Application-Specific Integrated Circuits (ASICs), which are also known as custom chips. These are workload-specific AI chips that can perform specialized tasks for significantly cheaper than Nvidia's large general-purpose GPUs. Many of Nvidia's top clients, like Alphabet, OpenAI, and Amazon, are already investing heavily in in-house chip design.
Will Nvidia crash in 2026?
Although Nvidia faces mounting challenges as clients continue losing money or increasingly turn to more affordable custom chips, a crash seems very unlikely. Despite the company's market cap of $4.3 trillion, its stock is reasonably priced considering its growth rate.
With a forward price-to-earnings (P/E) multiple of 23, the stock is actually much cheaper than the Nasdaq 100 average of 26. This dynamic suggests a significant slowdown is already baked into Nvidia's current valuation.
