NVIDIA (NVDA) has faced challenges in the past. Its stock has dropped over 30% within less than 2 months on as many as 8 separate occasions in recent years, resulting in billions being erased from market value and a significant loss of gains in a single correction. If past trends hold, NVDA stock is not shielded from abrupt, sharp downturns.
Nvidia’s remarkable rise in 2025, driven by unquenchable AI demand, and strong data center performance, has boosted its valuation to extraordinary levels. However, this very momentum creates vulnerability: a consolidating market with heightened competition from AMD and Intel, ongoing geopolitical export hurdles in critical regions, and the looming threat of an “AI bubble” could render its elevated position susceptible to any change in the relentless growth of generative AI investment.
WASHINGTON, DC – SEPTEMBER 27: NVIDIA founder, President and CEO Jensen Huang speaks about the future of artificial intelligence and its effect on energy consumption and production at the Bipartisan Policy Center on September 27, 2024 in Washington, DC. Huang said that machine learning uses a large amount of energy but that artificial intelligence will save energy in the long run due to it’s efficient computing abilities. Founded in California in 1993, NVIDIA is the world’s most valuable publicly traded company, with a market capitalization of over $3.3 trillion. (Photo by Chip Somodevilla/Getty Images)
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What Could Send The Stock Lower?
- Custom AI Chips: Hyperscalers (Google, Amazon, Microsoft) are using custom AI chips optimized for cost and inference, which affects NVIDIA’s market presence; Amazon claims 50% savings. NVIDIA’s CUDA ecosystem and rack-scale products help counter this impact.
- Rival Chipmakers: AMD (MI300 series) and Intel (Gaudi) are ramping up competition in AI accelerators, expected to decrease NVIDIA’s market share in the coming years. These chips may not rival Nvidia in terms of outright performance, but performance per dollar may be compelling. That said, NVIDIA’s robust CUDA moat and Blackwell GPU sales continue to be significant advantages.
- China Export Bans: U.S. export restrictions, such as the April 2025 H20 ban costing NVIDIA $5.5 billion, along with China’s drive for domestic chip production, present considerable risks. Recent limited export approval for the H200 could yield $25-30 billion in revenue, but challenges from Chinese regulations remain.
What’s The Worst That Could Happen?
Examining NVIDIA’s history during market downturns indicates that significant risks still exist despite its strengths. The stock dropped roughly 85% during the Global Financial Crisis and 68% in the Dot-Com crash. The sell-offs in 2018 and the inflation shock each resulted in declines exceeding 55%, with the latter around 66%. Even the COVID dip, though relatively short-lived, caused the stock to decrease nearly 38%. Strong fundamentals are important, but when the market shifts, NVDA is not immune to steep declines.
However, the risk isn’t solely linked to catastrophic market crashes. Stocks can decline even in favorable market conditions—consider events such as earnings reports, business updates, and changes in outlook. Review NVDA Dip Buyer Analyses to explore how the stock has bounced back from significant dips in the past.
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Is Risk Showing Up In The Company’s Financials Yet?
Let’s evaluate the fundamentals
- 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 45.8
Summary
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If you want more details, read Buy or Sell NVDA Stock?
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