This article first appeared on GuruFocus.
Nvidia (NASDAQ:NVDA) is entering 2026 under closer investor scrutiny after a powerful multiyear rally began to lose momentum. Shares are down about 8% from their Oct. 29 peak, lagging the S&P 500, as concerns grow around how sustainable artificial intelligence spending could be and whether Nvidia can continue to dominate its market at the same scale. The pullback is notable given the stock had risen more than 1,300% since the end of 2022 at its recent high, with market value climbing past $5 trillion before roughly $460 billion was erased in the months that followed, even as shares rebounded 1% on Tuesday.
Competitive pressures are becoming more visible across the AI hardware landscape. Advanced Micro Devices (NASDAQ:AMD) has secured large data-center orders from OpenAI and Oracle, while major Nvidia customers such as Alphabet (NASDAQ:GOOG), Amazon (NASDAQ:AMZN), Meta Platforms (NASDAQ:META) and Microsoft (NASDAQ:MSFT) are developing their own chips to reduce costs tied to Nvidia processors that can exceed $30,000 per unit. At the same time, demand for custom silicon has lifted Broadcom’s valuation to about $1.6 trillion, overtaking Tesla (NASDAQ:TSLA), and Nvidia has responded by licensing technology and hiring executives from Groq to incorporate lower-latency designs into future products. Even so, Bloomberg Intelligence suggests Nvidia’s market share could remain largely intact as cloud providers continue to expand capital spending, which is projected to exceed $400 billion in 2026.
Despite these risks, Nvidia continues to attract investor support due to its growth outlook and valuation. The company is projected to deliver 57% profit growth on a 53% increase in sales in its next fiscal year ending in January 2027, far ahead of peers such as Apple, while trading at about 25 times forward earnings, a discount to most of the so-called Magnificent Seven. Gross margins dipped in fiscal 2026 amid the Blackwell chip ramp but are expected to recover toward 75% in fiscal 2027, a key metric investors are watching closely. With most Wall Street analysts maintaining buy ratings and price targets implying further upside, Nvidia is still viewed by many as one of the faster-growing companies in public markets, even as the AI cycle faces heightened debate.