NVIDIA (NVDA) has faced setbacks in the past. Its stock has experienced declines of over 30% within a period of less than two months on up to eight separate occasions in recent years, eliminating billions in market value and undoing substantial gains in a single correction. If past trends are a reliable indicator, NVDA stock is susceptible to abrupt and significant drops.
SANTA CLARA, CALIFORNIA – MAY 30: An exterior view of the NVIDIA headquarters on May 30, 2023 in Santa Clara, California. Chipmaker NVIDIA reached a $1 trillion market cap at the open bell of the NYSE on Tuesday morning. The company is forecasting second quarter sales of $11 billion, 50 percent higher than analyst estimates of $7.15 billion. (Photo by Justin Sullivan/Getty Images)
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In particular, we identify these risks:
- Bloating Accounts Receivable and Channel Saturation
- Hyperscaler Bargaining Power and In-House Competition
- China Antitrust Investigation Escalation
Risk 1: Bloating Accounts Receivable and Channel Saturation
- Details: Future revenue growth may be missed due to pull-forward of demand, Valuation de-rating from worsening cash flow quality
- Segment Affected: Data Center
- Potential Timeline: Next Two Quarters
- Evidence: Accounts Receivable rose to $33.39 billion, a 45% increase since the beginning of the fiscal year (Q3 FY’26 Filing), Days Sales Outstanding (DSO) increased to 53.5 days, up from a historical average of 46 days (Q3 2025)
Risk 2: Hyperscaler Bargaining Power and In-House Competition
- Details: Gross Margin compression from mid-70s towards high-60s, P/E multiple contraction as the market reevaluates from ‘sole-source’ to ‘competitive’ supplier
- Segment Affected: Data Center
- Potential Timeline: Next 12-18 Months
- Evidence: Major cloud service providers are devising and enhancing their own custom AI accelerators (e.g., Google’s TPUs) to decrease dependence on NVDA (Dec 2025), Increased analyst insights on hyperscalers pursuing supply diversification with AMD and Intel for better pricing leverage (Jan 2026)
Risk 3: China Antitrust Investigation Escalation
- Details: Substantial fines reducing net income, Enforced operational changes or remedies affecting China business structure, potentially including the Mellanox unit
- Segment Affected: Data Center and Networking
- Potential Timeline: Next 6-12 Months
- Evidence: China’s State Administration for Market Regulation (SAMR) issued preliminary findings against NVIDIA for failing to comply with 2020 Mellanox merger remedies (Sept 15, 2025), The investigation has officially entered an ‘in-depth investigation’ phase, with the situation still unresolved (Jan 20, 2026)
What Is The Worst That Could Happen?
Assessing NVDA’s risk during significant market shocks tells a clear narrative. It plummeted 68% during the Dot-Com crash and 85% in the Global Financial Crisis. The 2018 selloff and inflation shock both affected it by over 55%. Even the Covid decline reduced its peak by nearly 38%. No crisis exempted it from steep declines.
However, stocks can fall even in favorable market conditions – consider events such as earnings reports, business updates, and changes in outlook. Read NVDA Dip Buyer Analyses to understand how the stock has rebounded from sharp declines in the past.
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Is Risk Showing Up In Financials Yet?
- Revenue Growth: 65.2% LTM and 91.6% last 3-year average.
- Cash Generation: Nearly 41.3% free cash flow margin and 58.8% operating margin LTM.
- Valuation: NVIDIA stock trades at a P/E multiple of 43.7
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If you seek more details, read Buy or Sell NVDA Stock
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