Concerns Mount for Nvidia as Wall Street Adjusts AI Expectations
President Donald Trump’s tariff policy has recently dominated discussions on Wall Street. However, the evolution of artificial intelligence (AI) has captured investor interest for over two years. At its core, AI enhances software and systems with the ability to reason, act independently, and learn new skills without human oversight. Analysts at PwC project that this transformative technology could boost global GDP by $15.7 trillion by 2030.
Nvidia: The Primary Beneficiary of AI Growth
Among the many players in the AI sector, Nvidia (NASDAQ: NVDA) stands out as a leading beneficiary. With an estimated $15.7 trillion available in the addressable market, Nvidia has rapidly emerged as a key player in AI-driven enterprise solutions. Its Hopper (H100) graphics processing unit (GPU) has become the go-to processor for AI-enhanced data centers. Following this, the company introduced the next-generation Blackwell GPU architecture, designed to enhance computational efficiency while reducing energy usage.
In just two fiscal years, Nvidia’s net sales surged from $27 billion to $130.5 billion. Compare this with Wall Street’s consensus, which anticipates nearly $201 billion in sales for fiscal 2026 (this year) and $248 billion for fiscal 2027.
Analysts Shift Outlook on Nvidia
Nvidia’s impressive growth has attracted significant attention from Wall Street analysts, all of whom previously set price targets above the company’s trading price. However, as Nvidia prepares to release its fiscal 2026 first-quarter operating results on May 28, sentiment is shifting. Recently, the company received its first sell rating from an analyst, signaling potential challenges ahead.
Seaport Research Analyst Takes a Cautious Stance
Jay Goldberg, a senior analyst at Seaport Research Partners, initiated coverage on Nvidia in late April with a cautious $100 price target, the lowest on Wall Street. Although he acknowledged Nvidia’s advancements, he noted that current expectations appear fully priced in, with several downside risks looming.
Goldberg points out that Nvidia has reached its order capacity for Blackwell in fiscal 2026, making it challenging to meet Wall Street’s high expectations. Despite Taiwan Semiconductor Manufacturing’s efforts to boost its chip capacity, which is crucial for AI data centers, Nvidia still faces limitations in hardware availability.
Goldberg also expressed concerns about potential cuts in business spending as companies evaluate their AI investments moving into 2026. While he does not foresee an AI bubble burst, he believes that businesses are still exploring the practical applications of AI, which could result in a slowdown in AI spending and orders.
Trade Restrictions Pose Additional Risks
Trade relations between the U.S. and China are another pressing concern. Since October 2022, both the Biden administration and Trump’s administration have implemented strict export restrictions on powerful AI chips and related equipment to China. Given that China is a significant revenue source for Nvidia, any uncertainty stemming from tariffs and trade relations could severely impact sales.
As Nvidia prepares to announce its latest financial results, it is likely that more analysts will adopt a cautious stance similar to Goldberg’s.
Internal Competition and Market Challenges Ahead
Nvidia’s competitive landscape may be shifting. While much attention is focused on major rivals like Advanced Micro Devices and Huawei, there is a growing trend of Nvidia’s largest customers developing their own AI chips for use in their data centers. Though these companies indicate that their self-developed solutions will complement Nvidia’s GPUs, this trend could lead to cheaper options and reduce Nvidia’s market share.
Moreover, Nvidia risks losing its unique position in the market. The scarcity of AI GPUs has bolstered Nvidia’s gross margins, but the influx of new hardware from competitors and its customers threatens to alleviate this scarcity.
One year ago, Nvidia boasted a GAAP gross margin of 78.4%. However, this margin has been on a downward trend since then.
NVDA Gross Profit Margin (Quarterly) data by YCharts.
# Nvidia’s Market Position Weakens Amid Potential AI Bubble Concerns
Nvidia’s estimated market share is projected to drop to 70.6% (+/- 50 basis points) in the fiscal first quarter, which the company will report on May 28. This might indicate a diminishing competitive edge for Nvidia.
Long-Term Technology Trends: A Cautionary Tale
History suggests that the artificial intelligence sector may also face challenges akin to past tech bubbles. For over three decades, many so-called “next-big-thing” innovations have experienced bubble-burst phases. A significant number of businesses have yet to optimize their AI solutions or achieve positive returns on AI investments, highlighting a potential overestimation of AI’s initial utility.
Market Predictions and Analyst Insights
As Wall Street analysts begin to consider these developments, it is likely that the number of sell ratings on Nvidia stock will increase. Investors might soon reassess the implications of current market dynamics on Nvidia’s long-term prospects.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
