Has Nvidia stock peaked? These words of the CEO may suggest what is to come

Over the past two years, the prospects of artificial intelligence (AI) have become a point of reference for the technology industry. Among a long list of AI investment opportunities, semiconductor companies have emerged as some of the most profitable.

Since ChatGPT took the world by storm in November 2022, the shares of Nvidia (NVDA -1.92%) they have gained a staggering 760% since this writing. In fact, the company’s market cap briefly eclipsed $3 trillion.

Indeed, it wasn’t that long ago that Nvidia was seen as a niche opportunity among a wider sea of ​​tech companies. And yet today, Nvidia is the third largest in the world as measured by market capitalization, making it more valuable than Amazon, Alphabet, Meta platforms, adzeand Berkshire Hathaway.

With AI looking like the next generational opportunity for investors, Nvidia may seem like the most profitable choice of all given its influential role and seemingly unstoppable potential. However, a recent remark from Nvidia CEO Jensen Huang makes me wonder how much higher the stock can go.

What did Jensen Huang just say?

Last week, investment bank Goldman Sachs hosted the Communacopia + Technology Conference, where analysts were given rare access to Huang to ask questions about Nvidia’s product roadmap, customer use cases and broader industry trends.

Given that Nvidia has consistently beaten Wall Street expectations over the past two years, you’d think most of Huang’s questions would focus on the prospects for record growth. But one analyst actually took a different approach: The analyst asked Huang why he was worried, despite Nvidia’s market leadership and strong secular headwinds fueling its business.

Here is Huang’s response:

Well, our company works with every AI company in the world today. We work with everyone data center in today’s world. I don’t know a data center, a cloud service provider, a computer manufacturer we do not work with. And what comes with that is … (an) enormous responsibility and we have a many people on our shoulders and everyone relies on us and the demand is so high that the delivery of our components and our technology and our infrastructure and our software is really emotional for people because it directly affects their revenue, it directly affects their competitiveness. And so we probably have more excited customers today than — and rightfully so. And if we could meet everyone’s needs, then the emotion would disappear, but it’s very emotional. It’s really tense. We have a big responsibility on our shoulders and we try to do the best we can.

I know that’s a loaded sentence. And frankly, there are a lot of themes that suggest Nvidia is in a good place.

But the above explanation doesn’t inspire the same sense of confidence in me that it might for other investors. Instead, it makes me a little nervous.

Why does this make me nervous?

The list of Nvidia chipsets, called graphics processing units (GPUs), includes the highly regarded A100 series, H100 series and the new Blackwell series. As it stands today, some industry research suggests that Nvidia has 88% of the AI ​​chip market.

Huang really wasn’t exaggerating when he said, “Everyone is counting on us.” Given that Blackwell’s chip launch was recently delayed due to a design flaw, Huang’s remarks about customers being excited make a lot of sense.

It is these ideas that worry me. Nvidia is no longer viewed as just another semiconductor stock. Rather, the company itself is largely seen as a barometer for the health of the AI ​​market as a whole. Given this shift in perception and the pressure to deliver that comes with it, I’m starting to think Nvidia’s share price action is increasingly vulnerable.

In other words, even if Nvidia delivers a strong quarter of growth, investor expectations are getting so high that good may not be good enough. When you put on top of how much influence Nvidia has in the chip space, it’s only natural to think that it’s only a matter of time before even the smallest hiccup could significantly affect the stock price.

Image source: Getty Images.

Has Nvidia stock peaked?

I can’t say with justifiable certainty whether or not Nvidia stock is headed higher. What I strongly believe is that Nvidia stock is unlikely to rise another 700%. Even in the long term, I think such a move is doubtful.

There are already several reasons to be cautious about Nvidia’s long-term growth prospects. Currently, almost half of the company’s revenue is concentrated in just four customers. However, many of these customers are spending significant amounts to build their own chips and migrate from Nvidia.

The combination of increasing competition, declining revenue and margin trends, and huge (and unrealistic) expectations that Nvidia will continue to deliver top-notch products and business results in perpetuity leads me to believe that Nvidia stock may have peaked.

While further gains are likely in store, I believe they will be short-lived. Ultimately, I think Nvidia stock will normalize sooner than many anticipate. Because of this, investors should consider all the pieces of the puzzle before pouring into the darling semiconductor going forward.