After a transformational 2024 for Nvidia's (NVDA 0.98%) business and its stock, momentum has persisted as the AI (artificial intelligence) boom accelerated. The year has confirmed Nvidia's leadership position in AI chips as its data center segment has grown to represent the majority of its business, and demand for its most powerful products continues to exceed supply.
There's a lot to like about the tech company, which designs graphics processing units (GPUs) and related systems that power AI computing. In fact, Nvidia has seen its growth reaccelerate in its most recent quarter.
But has the stock soared too high, making shares unattractive even though the business is firing on all cylinders?
I think so.
Here are three reasons I'm not interested in buying Nvidia at its current price.
Image source: Getty Images.
Customer concentration risk
Highlighting the explosive demand for its products, Nvidia's revenue grew 62% year over year in its third quarter of fiscal 2026 (the quarter ending Oct. 26, 2025) after 56% year over year growth in fiscal Q2.
That kind of growth, however, depends heavily on a small group of customers. In its quarterly report for fiscal Q3, Nvidia said one direct customer accounted for 22% of total revenue, another represented 15%, and two more customers each exceeded 10%. Even more, this concentration risk has been rising; for the year-ago quarter, the company disclosed its three biggest customers at 12% apiece.
And Nvidia warned in its fiscal third-quarter update that it also generates a substantial portion of its sales from a limited number of indirect customers, or customers who primarily purchase Nvidia's products through distributors and system integrators.
"We generate a significant amount of our revenue from a limited number of indirect customers," Nvidia explained in its fiscal third-quarter 10-Q filing, "some individually representing 10% or more of our revenue."
Competition is intensifying
Additionally, while Nvidia is still a clear leader across essentially every high-value technology behind AI, including related CPUs, GPUs, networking, and even some critical software used to run this hardware, it's not stopping some of Nvidia's biggest customers from looking for workarounds for some aspects of their AI businesses.
Alongside its use of Nvidia GPUs, Alphabet (GOOG 0.42%) (GOOGL 0.46%) has used Tensor Processing Units (TPUs) internally for years. And the generative AI company Anthropic is betting on these Alphabet TPUs, too.
"We are investing in TPU capacity to meet the tremendous demand we are seeing from customers and partners," said Alphabet CEO Sundar Pichai in the company's third-quarter earnings call, "and we are excited that Anthropic recently shared plans to access up to 1 million TPUs."
Meanwhile, Amazon (AMZN 1.12%) has pushed its Trainium line along a similar path. In fact, Anthropic is also a Tranium customer.
This Amazon AI chip business is seeing explosive growth.
"Trainium2 continues to see strong adoption, is fully subscribed, and is now a multibillion-dollar business that grew 150% quarter-over-quarter," said Amazon CEO Andy Jassy in the company's most recent earnings call. "Today, Trainium is being used by a small number of very large customers, but we expect to accommodate more customers starting with Trainium3."
NASDAQ: NVDA
Key Data Points
The valuation is steep
The final reason I'm not buying Nvidia shares headed into 2026 is valuation. Shares of a price-to-earnings ratio of about 45 as of this writing. This is well above the valuations of more diversified tech giants like Alphabet, Amazon, and Microsoft -- all of which have significant exposure to AI alongside their proven core businesses that have grown at robust rates for years. The price-to-earnings ratios of these three tech companies currently stand at 30, 32, and 34, respectively. I'd rather put my money on these less cyclical tech giants entering 2026 than on Nvidia, which has an uncomfortable level of customer concentration and is facing rising competition from deep-pocketed tech giants.
