It’s been roughly three years since OpenAI’s ChatGPT introduced the world to generative artificial intelligence (AI), and the boom shows no signs of slowing anytime soon.
This trend is excellent news for Nvidia(NASDAQ: NVDA) because companies continue to spend billions on its cutting-edge computing hardware. Demand still outstrips supply, allowing the chipmaker to maintain incredibly high growth and profit margins.
Going into 2026, the factors that helped Nvidia soar in 2025 are still in play. And the company’s core business is so strong that its $4.63 trillion market cap looks reasonable compared to earnings and growth. That said, the future of the generative AI opportunity is uncertain, which could have negative implications for the stock.
Let’s dig deeper to see what might come next.
Image source: Getty Images.
Perhaps the most surprising thing about Nvidia stock is how reasonably priced it is. With a forward price-to-earnings (P/E) multiple of 25, shares are actually slightly cheaper than the Nasdaq-100 estimate of 26 and trade at a sharp discount to other big tech stocks like Amazon and Apple, which boast forward P/Es of 28 and 33, respectively. This fact is even more surprising when you consider Nvidia’s explosive growth.
Third-quarter revenue soared 62% year over year to a record of $57 billion, driven by strength in Nvidia’s data center segment, where it records sales of its advanced graphics processing units (GPUs) for running and training large language models (LLMs). According to CEO Jensen Huang, sales of the new Blackwell GPUs are “off the charts” with demand accelerating exponentially. Nvidia’s margins remain high, and net income soared 65% year over year to $31.9 billion.
Nvidia returns this cash to shareholders through a massive stock buyback program (with $62.2 billion authorized), which will reduce the number of shares outstanding to boost earnings per share (EPS). With numbers like these, Nvidia stock is far from a bubble. In fact, it looks like a fantastic deal going into 2026. But unfortunately, there is a catch.
When an outstanding company like Nvidia trades for a very average valuation, it suggests the market is skeptical about the sustainability of its business. And going into 2026, an increasing number of analysts are getting worried about AI spending in the U.S. economy.
According to Goldman Sachs, AI capital expenditure from hyperscalers (these are essentially cloud computing companies) could climb to an eye-popping $527 billion in 2026. The management of these companies likely believes they will eventually get a return on this spending — or they simply don’t want rivals to get a long-term edge. But it is unclear how much longer shareholders will tolerate these highly speculative outflows when the money could go to other things, like buybacks or dividends.
Meanwhile, there is surprisingly little profit being generated on the consumer side of AI. For example, analysts at Deutsche Bank believe industry leader OpenAI could burn through an eye-popping $143 billion by 2029. The ChatGPT creator’s planned initial public offering (IPO) in the second half of 2026 could actually be a significant risk factor for the industry because it could expose the public to the alarming economics behind the AI boom.
As a pick-and-shovel hardware provider, Nvidia will probably be one of the last to feel the impacts of AI uncertainty. It can still win when others lose. But if demand slows, the company’s fantastic gross margin of typically more than 70% could begin to come back down to earth.
The tech industry has already signaled that it plans to double down on AI-related spending in 2026, which means Nvidia’s operational boom will likely continue — especially as the company releases new products such as the Rubin class of GPUs designed specifically for AI video generation. That said, Nvidia’s stock price growth will likely remain modest as investors grapple with the increasingly uncertain future of this new technology.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Goldman Sachs Group, and Nvidia. The Motley Fool has a disclosure policy.
