Nvidia‘s (NASDAQ: NVDA) The company’s stock has gained more than 600% over the past two years. Much of that gain has come from growth in the artificial intelligence (AI) market, which has boosted its sales of data center GPUs for processing complex AI tasks.
The market’s insatiable demand for its data center chips continues to outstrip available supply, and analysts expect Nvidia’s revenue to grow at a compound annual growth rate (CAGR) of 45% from fiscal 2024 to fiscal 2027 (which ends in January 2027). They expect its earnings per share (EPS) is expected to grow at a CAGR of 51%.
So even though Nvidia is already worth over $3 trillion, it could still have a lot of potential. room to run. But before buying this booming stock, investors should pay attention to these four warning signs that could bring its historic rally to an unexpected end.
1. AI chips have become a game in themselves
In fiscal 2022 (which ended in January 2022), Nvidia generated 46% of its revenue from its gaming GPUs, 39% from its data center GPUs, and the rest from its professional visualization, automotive, and OEM chips. However, that product mix changed completely over the next two years, as its data center chip sales eclipsed its gaming chips.
In the first quarter of fiscal 2025, Nvidia generated 87% of its revenue from data center chips, 10% from gaming chips, and the remaining 3% from its other categories. It generated $22.6 billion in data center revenue in that quarter alone, compared with total revenue of nearly $27 billion in the prior year. all This meteoric expansion has transformed Nvidia from a more diversified GPU maker into a full-fledged player in AI chips.
That’s a good thing if you think Nvidia will continue to dominate the AI market as it expands. But if the AI market cools off abruptly, Nvidia’s chip shortage could quickly turn into a supply glut. If its data center business slows, the company won’t be able to count on growth in its gaming segment and other smaller divisions to smooth out those year-over-year comparisons.
2. It faces unpredictable regulatory challenges
Nvidia’s overwhelming reliance on the AI market exposes it to a host of unpredictable regulatory challenges. U.S. regulators have repeatedly tightened restrictions on AI chip exports to China, and that pressure could prompt Chinese chipmakers to accelerate development of their own AI chips.
Tighter regulations on generative AI technologies, already in place in Europe, could slow the growth of the booming sector and prompt companies to limit their purchases of new AI chips. Complaints about mass plagiarism and other ethical issues could also force AI companies to grow at a slower, more measured pace.
3. It faces clear competitive threats
Nvidia controls 88% of the discrete GPU market, according to JPR, but its main rival AMD has launched cheaper AI accelerators. AMD’s MI300 Instinct GPUs have already beaten Nvidia’s H100 GPUs, which cost about four times as much…
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