Nvidia shares have soared more than 700% in less than two years, and there are plenty of factors that will continue to impact the stock price.
Artificial intelligence (AI) has been one of the biggest investment topics over the past two years. The promise of AI is compelling, but not all opportunities related to this technology are equal.
Nvidia, whose stock price has risen more than 700% since January 2023 (NVDA -0.09%) has become one of the biggest players in the AI space, and its chipsets, called graphics processing units (GPUs), are a key component in the development of generative AI.
While Nvidia has emerged as a dominant force in the GPU space so far, there are a variety of factors that could affect whether the company’s stock price rises or falls over the next few years.
Let’s consider some key details surrounding Nvidia’s business and how they may affect the company’s growth prospects.
Nvidia’s Near-Term Catalysts
Currently, Nvidia’s GPU lineup is characterized by the A100 and H100 chipsets, with the H100 becoming a staple for AI development among leading tech companies such as Meta Platforms and Tesla.
Additionally, the company’s long-awaited new Blackwell series GPUs are finally set to hit the market. Nvidia management has already told investors that Blackwell shipments will bring in billions of dollars in revenue in the fourth quarter, with shipments continuing into next year. I believe the Blackwell moves should be a catalyst for Nvidia and help accelerate the company’s revenue and profits.
Over the past few years, companies of all sizes have been operating under tighter financial controls and smaller budgets, but the Federal Reserve’s recent interest rate cuts could spur new buying activity in the AI market, and I believe Nvidia will benefit from these tailwinds.
Overall, it wouldn’t be surprising to see Nvidia stock rise in the coming months. While this may be encouraging, in the next section we’ll analyze some factors that could have an even bigger impact on Nvidia stock in the long term.
Image source: Getty Images.
Nvidia faces long-term headwinds
I see three big issues that could put a lot of pressure on Nvidia over the next few years:
1. Competition: Currently, Nvidia’s direct competitors are primarily Advanced Micro Devices and Intel. While Nvidia has done a good job of fending off these competitors, I am a bit more concerned about the company’s indirect competitors.
Members of the “Magnificent Seven,” which includes Microsoft, Amazon, Tesla, and Meta, are in the early stages of developing their own chips and AI training platforms. As mentioned above, Tesla and Meta are known Nvidia customers. Additionally, there have long been rumors that Microsoft could become Nvidia’s largest customer.
Given that 46% of the company’s revenue is concentrated in just four customers, I see these ambitious efforts from Magnificent Seven as a big signal that the company is looking to move away from its reliance on Nvidia GPUs and compete directly with them.
As competition into the chip space intensifies, it wouldn’t be surprising if Nvidia’s revenue and profitability began to slow significantly.
2. Cyclicality: Remember how we said that not all AI opportunities are the same? Technology stocks in general can be cyclical businesses.
While chips are currently one of AI’s hottest commodities, these demand trends will normalize over time, and if AI spending in general starts to slow as chip adoption from competitors outlined above increases, Nvidia’s growth will likely continue for longer.
3. Government: The final concern regarding Nvidia is the possibility of government interference. Currently, Nvidia is estimated to have 88% of the GPU market share. Additionally, there are concerns that Nvidia’s tightly integrated system of GPUs and CUDA software platform may be creating a monopoly for the company and stifling competition. These allegations could come to light in the form of a government investigation by the US Department of Justice.
Nvidia stock three-year outlook
While Blackwell’s launch and strengthening economics should benefit NVIDIA’s business (and therefore its stock price), I believe the company faces too many hurdles in the long term to justify an overwhelmingly bullish outlook.
To be clear, I don’t think Nvidia is a bad investment at all, but I think the stock will face a tough few years ahead given increased competition from its own customers, a possible normalization of AI spending, and the possibility of government action against Nvidia.
If Nvidia’s business begins to show consistent signs of slowing, I believe the company’s valuation multiple will begin to shrink and the stock will lose its premium. For these reasons, I expect Nvidia’s stock price to be lower in three years than it is today.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and communications at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco owns shares of Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool owns shares of and recommends Advanced Micro Devices, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
