Stock Advisor NVIDIA (NASDAQ:NVDA) discussion board member japeel felt secure in his investment -- until a 70% share-price slide in less than a year spurred him to rethink his thesis.

As an IT professional and avid gamer, japeel understood the industry-leading graphic chips (GPUs) maker's business, and even believed that being the "sole provider of chipsets to Sony (NYSE:SNE) and Microsoft (NASDAQ:MSFT) for their consoles" suggested a "great moat." In addition, management was lead by a passionate "top class" CEO.

Since then, however, new developments have threatened NVIDIA's dominant position -- and with it, japeel's investment thesis. Though NVIDIA had risen sixfold since 2003, it's plunged recently amid major concerns about the chipmaker's long-term prospects. Has this company's moat sprung a serious leak?

Larrabee leaps the moat
Economics teaches us that capital flows to the best returns. Intel (NASDAQ: INTC), a chip behemoth with more cash on its balance sheet than NVIDIA's total market cap, aims to see whether this economic principle actually works. It recently announced plans to take on NVIDIA and Advanced Micro Devices' (NYSE:AMD) ATI Technologies with a new graphics processing unit (GPU) that Intel calls "Larrabee." Although it's not a GPU specialist, Intel's entrance into this market could cause major hurdles for NVIDIA down the road.

Because of Intel's massive size and scale, and its titantic research and development budget, it can quickly breach NVIDIA's moat. On top of that, ATI Technologies, NVIDIA's primary competitor, recently threw its rival a curveball by lowering prices on recently released GPU's.

It's good to be the king ... until your castle's under siege
These incursions into NVIDIA's niche forced japeel to think twice. He concluded his post (subscription or free trial to Stock Advisor required) with this analysis:

Using a Buffet principle to determine the investment status of Nvidia as follows. Can I say with any degree of certainty that Nvidia, has enough money and expertise to dominate the graphics and parallel processor market, over say, the next ten years, no I can't; five years, no I can't; the next six months maybe, er nope; oops I'm speculating. You might know better, I'm envious of your insight if you do. The market knows that Intel, is pouring tons of cash into Nvidia's space (ref the Larabe), AMD are also going to applying pressure in the PC graphics card market and produce their own integrated graphics option (which I won't be buying). Where does all this energy lead us eventually, graphics integrated with processors which are massively parallel, then Graphics go the same way that sound cards did, from being premium components, to being another included feature, in this case of the processor. Has Nvidia got what it takes, to take on Intel and win? Much as it pains me to say it, nope, I don't think they do and neither does the market...

I'm sticking with my speculation for now, but I don't try to delude myself that it's anything else, I certainly no longer call it an investment. I may be wrong, if I was certain I'd be rich ;o)

After watching how quickly competitors overwhelmed NVIDIA's once-dominant moat, japeel decided that this stock is more speculation than investment. What do you think? What special insights do you have into NVIDIA's or Intel's competitive position? Leave a comment below, or sound off in Motley Fool CAPS.

japeel is not an employee of The Motley Fool, and japeel's opinion does not necessarily reflect that of the Fool

Fool contributor and community analyst John Ballard does not own shares in any companies mentioned.Intel and Microsoft are Motley Fool Inside Value picks. NVIDIA is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.