Nvidia’s $4 Trillion Stock Rally Faces More Threats Than Ever

(Bloomberg) — The world’s most valuable company is on shaky stock market footing as 2026 gets underway.

Nvidia Corp. (NVDA) shares are down about 8% since hitting a record on Oct. 29, well underperforming the S&P 500 Index, as investors grow concerned about the sustainability of artificial intelligence spending and the chip giant’s grip on the market.

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The recent drop is notable considering that on the day the stock last closed at an all-time high, it was up more than 1,300% since the end of 2022 and Nvidia’s market capitalization was over $5 trillion compared with roughly $400 billion less than three years earlier. Now, the stock has lost $460 billion of market value in a matter of months, taking its three-year gain to nearly 1,200%.

Shares rose 1% on Tuesday.

Meanwhile, the dominant AI chipmaker is facing more competition than ever before from rivals like Advanced Micro Devices Inc., as well as its biggest clients, including Alphabet Inc. and Amazon.com Inc. And Wall Street is growing increasingly worried about Nvidia’s investments in many of its customers, which could be seen as artificially propping up demand.

“The risks have clearly risen,” said JoAnne Feeney, partner and portfolio manager at Advisors Capital Management, which has $13 billion in assets.

The impact of a Nvidia downturn would be felt by most equity investors. Since the market’s bull run began in October 2022, the stock accounts for roughly 16% of the S&P 500’s advance, according to data compiled by Bloomberg. The next biggest contributor, Apple Inc., is responsible for around 7%.

That said, demand for Nvidia shares remains strong with the company trading at a cheaper valuation than many of its Big Tech peers despite scorching earnings expectations. The Santa Clara, California-based company is projected to generate 57% profit growth on a 53% increase in sales in its next fiscal year, which ends in January 2027. Apple, by contrast, is expected to see gains around 10% in both measurements.

Wall Street also is hardly backing away from Nvidia, with 76 of the 82 analysts who cover the company holding buy ratings and only one recommending selling. The average Wall Street price target implies a gain of 37% over the next 12 months, which would push its market value over $6 trillion.

“Nvidia is still likely to be one of the fastest growing companies in public markets,” Feeney said. “Do you want to own that? Yes.”

Nvidia’s next generation chips, dubbed Rubin, are nearing release this year and customers will soon be able to try out the technology, Chief Executive Officer Jensen Huang said Monday in a presentation at the CES trade show in Las Vegas.

“Demand for Nvidia GPUs is skyrocketing,” Huang said. “It’s skyrocketing because models are increasing by a factor of ten, an order of magnitude every single year.”

Here’s a look at a few key issues facing the stock in 2026.

Chip Competition

Nvidia is the premier producer of AI accelerators, commanding more than 90% of the market. But competitors are starting to gain steam.

Advanced Micro Devices Inc. has won big data center orders from OpenAI and Oracle Corp., and its data center revenue is projected to jump about 60% to almost $26 billion in 2026, according to data compiled by Bloomberg. Meanwhile, Alphabet, Amazon.com, Meta Platforms Inc. and Microsoft Corp., which account for more than 40% of Nvidia’s revenue, are building their own chips in an attempt to get around the expense of buying Nvidia’s, which can cost more than $30,000 apiece.

“People will use less costly chips if they can,” said Michael O’Rourke, chief market strategist at Jonestrading. “It’s becoming clear that maintaining 90% market share is going to be a challenge.”

Alphabet’s Google began working on its first tensor processing unit more than a decade ago and has adapted it to train and run queries for its AI models. Google’s latest version of the Gemini AI chatbot, which received glowing reviews, is optimized to run on the chips. In October, Alphabet reported a chip deal with Anthropic valued in the tens of billions of dollars. In November, The Information reported that Meta is in talks to rent chips from Google Cloud in 2026 and use them in data centers in 2027.

Demand for these custom-made chips is lifting Broadcom Inc., which builds semiconductors for the AI giants. Growth in Broadcom’s application-specific integrated circuit business, known as ASIC, has vaulted it into the ranks of the world’s most valuable companies. At $1.6 trillion, Broadcom is now bigger than Tesla Inc.

Nvidia’s move to license technology and hire executives from startup chipmaker Groq on Dec. 24 seemed to be an acknowledgment of growing demand for more specialized and less costly chips. The company plans to include elements of Groq’s chips in its future designs, giving it access to so-called low latency semiconductors, an alternative approach used in running AI software that’s similar to ASICs.

That said, the demand for AI computing power is so vast that Big Tech companies are still hoovering up Nvidia’s chips even as they deploy their own. As a result, Nvidia’s market share is expected to remain intact for the foreseeable future, according to Bloomberg Intelligence analysts Kunjan Sobhani and Oscar Hernandez Tejada.

“The market is underestimating Nvidia’s position,” Morgan Stanley analysts including Joseph Moore, who has a buy rating on the stock, wrote in a research note last month. “We continue to think that Nvidia will be the highest ROI solution in cloud.”

Capital expenditures by Amazon, Microsoft, Alphabet and Meta are projected to be more than $400 billion in 2026, with much of it going toward data-center equipment. That’s in addition to hundreds of billions of dollars to lease data-center space developed by others in the coming years. OpenAI has pledged to spend $1.4 trillion in the coming years, even though there are doubts about the money-losing startup’s ability to cover those costs.

Margins and Valuation

With rivals offering cheaper alternatives, investors are keeping a close eye on Nvidia’s profit margins because any weakness in the company’s pricing model will show up there.

The chipmaker’s gross margin, a key measure of profitability that excludes the cost of goods sold, was in the mid-70s in percentage terms in fiscal 2024 and 2025. But it dipped in fiscal 2026 due to higher costs from the ramp-up of its Blackwell series chips. The figure is projected to be 71.2% in fiscal 2026, which ends on Jan. 31, and Nvidia says it will climb back to around 75% in fiscal 2027. So a margin shortfall would likely set off alarms on Wall Street.

Another factor that’s keeping investors in Nvidia’s camp is the stock’s relatively cheap valuation. At 25 times profit expected over the next 12 months, Nvidia trades at a discount to all of the so-called Magnificent Seven stocks save for Meta. It’s less expensive than more than a quarter of the stocks in the S&P 500, including TurboTax software maker Intuit Inc.

Nvidia “is being valued as if the cycle has ended, as if nobody will deploy AI, as if there’s going to be a lot of stumbling blocks,” said Vivek Arya, a semiconductor analyst at Bank of America. “That is the opportunity from an investor perspective and it’s of course very different from what we saw at the peak of the internet cycle.”

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