Shares of artificial intelligence (AI) chipmaker Nvidia (NVDA +5.93%) have slid more than 5% since the company's most recent earnings report, despite the business posting massive, accelerating growth. With the company commanding a market capitalization of $4.5 trillion, it's fair to wonder whether it can keep growing so rapidly for much longer -- and that may be what the market is doing.
Yes, Nvidia's revenue growth is accelerating now. But what will happen to the stock when growth starts decelerating? Even more, can the company maintain its robust margins as competition heats up?
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Accelerating growth and expanding margins
Nvidia's fourth-quarter results for fiscal 2026 certainly didn't show any signs of weakness. Revenue in the period surged 73% year over year to a record $68.1 billion. This marked a clear acceleration from the 62% year-over-year top-line growth the company posted in its fiscal third quarter.
And Nvidia's bottom-line momentum was even more impressive. Net income skyrocketed 94% year over year to about $43 billion.
This profit explosion was fueled by expanding margins and -- of course -- seemingly insatiable demand for AI. The company's gross margin hit 75% in the fourth quarter, up from 73.4% in the year-ago quarter.
Even more, Nvidia expects this strength to persist in the near term. Management's guidance for first-quarter revenue of $78.0 billion implies another staggering year-over-year increase of about 77%.
And the company also continues to flex its financial muscle, having generated nearly $100 billion in free cash flow during fiscal 2026, enabling it to repurchase shares and fund future research and development simultaneously.
The hyperscaler demand driver
The catalyst behind this momentum remains Nvidia's data center segment, which generated $62.3 billion in revenue, up 75% year over year.
Major cloud providers -- or hyperscalers -- accounted for slightly more than 50% of this data center revenue. These customers are aggressively building out infrastructure to support their AI ambitions. Amazon (AMZN +0.53%), for instance, has said that it expects to invest about $200 billion in capital expenditures in 2026, largely driven by AI hardware.
NASDAQ: NVDA
Key Data Points
Is Nvidia stock a buy?
With accelerating revenue, expanding margins, massive cash flow, and robust forward guidance, why not buy the stock?
The issue is the valuation.
As of this writing, Nvidia trades at a price-to-earnings ratio of about 37. While this multiple might not sound egregious for a company growing revenue at a 73% clip, investors should keep in mind that the chip business is cyclical.
The stock's current valuation assumes the company will not only maintain its dominance in the AI accelerator market but also sustain its 75% gross margin for years to come, even as competition intensifies and as the demand for AI potentially cools at some point.
In short, a valuation like this leaves almost no room for error. If hyperscalers eventually pull back on capital expenditures, or if their push to develop internal custom silicon starts to chip away at Nvidia's pricing power over the long haul, the stock's premium valuation could suffer.
Nvidia is an exceptional company with a seemingly unassailable lead in one of the most important technological shifts of our time. But at the stock's current valuation, and given the cyclicality of the chip business, shares look more like a hold than a buy today.
With that said, it's possible that Nvidia's lead over competition gets even bigger over time, fortifying the company's pricing power and helping the company sustain robust revenue growth rates for years. But I'd rather wait for a more attractive entry point -- one that better prices in the risk that Nvidia's pricing power will erode over time if competition heats up.
