Tech investors have had a shaky start to 2026, and artificial intelligence (AI) is expensive Nvidia(NASDAQ: NVDA ) Not saved. As of this writing, the semiconductor giant’s stock is down nearly 5% year to date.
With shares taking a breather after an incredible multi-year run, investors may be wondering if this is a rare opportunity to buy a dip.
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Or is the market right to be cautious about stocks?
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Looking at the company’s recent results, it’s hard to find much to complain about. Business is undoubtedly strong.
In the fourth quarter of fiscal 2026 (ended January 25), Nvidia’s revenue was $68.1 billion, up 73% year over year. That top-line increase was fueled by the company’s mission-critical data center segment, where revenue jumped 75% from a year ago to a record $62.3 billion.
“The demand for computing is growing rapidly — the agentic AI inflection point has arrived,” CEO Jensen Huang noted in the company’s earnings release.
The company’s huge revenue growth effectively trickled down to the bottom line. Nvidia’s fourth-quarter earnings per share rose 98% year over year to $1.76.
And management is also putting its big cash generation to work. During fiscal 2026, Nvidia returned $41.1 billion to shareholders through share repurchases and cash dividends. Purchases of this scale demonstrate management confidence and directly benefit shareholders by reducing the total number of shares.
Even more, the company doesn’t foresee a slowdown anytime soon. Management has guided for revenue of approximately $78.0 billion for the first quarter of fiscal 2027, indicating that sequential growth will continue. Even more, this guidance represents acceleration, growing 77% year-over-year, compared to the 73% growth the company reported in fiscal Q4.
However, the problem lies in what the future holds as the AI landscape matures.
The risk is not necessarily a sudden collapse in AI consumption. This is due to increasing competition and the potential for margin erosion over time as the competitive environment intensifies.
Hyperscalers love it Amazon(NASDAQ: AMZN ), the alphabetand Microsoft Today Nvidia spends a lot on graphics processing units (GPUs), but they rely increasingly on their custom silicon solutions. These big tech companies are some of Nvidia’s biggest customers, but it makes sense for them to find ways to reduce their dependence on Nvidia over time. Alphabet, for example, has spent years deploying its Tensor Processing Units (TPUs), while Amazon continues to leverage the cost-effectiveness of its Trinium chips for training AI models.
Amazon specifically addressed the need for affordable AI computing chips during its earnings call, noting that it is working directly to address the issue of high-priced chips.
“A key barrier today is the cost of AI chips,” explained Amazon CEO Andy Jassy. “Customers are hungry for good price performance (…) and understandably, the dominant early leaders are in no rush to make that happen. They have other priorities. That’s why we built our custom silicon in training.”
This push for cheaper, custom alternatives could ultimately pressure Nvidia’s pricing power.
But with shares trading at a price-to-earnings ratio of 36 as of this writing, Nvidia’s stock isn’t priced as if margins will erode over time. It is priced as if the company remains a dominant leader with significant competitive advantages for the foreseeable future.
Of course, that’s not an outlandish assumption, given Nvidia’s unusual moves.
However, an investor should consider the risk of competition intensity. If Nvidia is forced to compete more aggressively on price in the future to maintain market share against its hyperscalers — which represent a large concentration of its revenue base — margins could come under severe pressure.
With this significant customer concentration risk and potential margin compression in mind, I would be cautious at this price.
The company is attractive, but the stock’s valuation calls for continued dominance not just for the next few years, but for the next decade. For most investors, therefore, I think it makes no sense to buy at this price. However, for investors who truly believe that we are still in the early stages of AI creation and that Nvidia will maintain its iron grip on the market, this 5% pullback may be the perfect opportunity to start a small position. But I would keep any position size moderate and recognize the risks involved.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool owns and recommends positions in Alphabet, Amazon, Microsoft, and Nvidia. Motley Fool has a disclosure policy.
Nvidia stock is down nearly 5% this year. Is now a good time to buy? Originally published by Motley Fool
