By Jacob Sonenshine
Nvidia stock rose roughly 300% from the end of 2022 -- when the artificial intelligence revolution began -- to its recent peak in October, more than tripling the broader market's advance.
And while the stock is up about 3% this year, it has not been providing the same stellar returns since that multiyear run.
Nvidia's shares are in this position because of a powerful combination of factors. First of all, Nvidia's general outperformance had become so extreme that investors became willing to take winnings by selling the stock in some recent periods. That, coupled with competitive concerns for Nvidia and its peers Advanced Micro Devices and Broadcom, was enough to cause Nvidia's shares to underperform since late last year.
On the first point, Nvidia's stock price as a percentage of the S&P 500's level hit at least a 10-year high in early November after its historically strong outperformance, according to Barron's calculations of FactSet data. It was only a matter of time before the outperformance would wane.
On Tuesday it was trading at $194, in a range between the $165 it fell to in late March and the $207 it peaked at late last year.
It just hasn't gotten much traction: Nvidia's is up roughly 8% over the last six months, while the S&P 500 is up roughly 5% and the VanEck Semiconductor Exchange-Traded Fund is up 34% in that span.
At this point, Nvidia is valued more like other chip companies, appropriately so. Sure, the competitive threat exists for AMD and Broadcom, too, but Nvidia was the darling the market valued extremely richly.
During the AI era, Nvidia has sometimes traded above 50 times analysts' expected earnings for the coming 12 months, more than double the chip ETF's multiple. Nvidia now trades at just under 24 times, a few points above the chip fund's just under 22 times. The takeaway: the market is accepting that even the dominant and pioneering Nvidia isn't immune to competition.
That competition flared up. Amazon.com's annual shareholder letter said the company's chip sales (for Tranium, Graviton, and Nitro) is now running at over $20 billion on an annualized basis. That's up from the $10 billion stated months ago.
Notably, Amazon doesn't break out chip revenue as a separate business segment, but essentially charges Amazon Web Services cloud computing customers to reflect the chips, which are part of the entire service. This business can take some market share from the main data center AI chip makers, the three of which are expected to see combined sales of a few hundred billion dollars this year, according to FactSet.
Amazon appears on track to take a sliver of the market, which raises concerns that growth for the chip makers, including Nvidia, could slow down. Nvidia is suspect number one in terms of potentially poor stock price performance, given that it's had so much long-term outperformance already.
The flip side is that Nvidia is now cheaper than it often is. When its price/earnings multiple falls to the low 20s, it tends to go on to see strong performance for some time thereafter, something Alliance Bernstein analyst Stacy Rasgon, who maintains an Overweight rating on the shares, has pointed out.
In fact, after the multiple fell to around this level in early April 2025, the stock went on to double over the following 12 months. When it fell to the low 20s in late 2023, the stock then rose about 200% over the subsequent year.
In those instances, the market decided the stock had become cheap enough to reflect any concerns about profits, and then buyers came in to send it higher on the belief that it can continue to make some of the world's best chips and grow earnings faster than the average S&P 500 company.
That could certainly happen again this time around, but the key thing to remember is that Nvidia's multiple is unlikely to reach the lofty heights of 50 times any time soon.
It may just prove to be a high-growth chip company that performs not necessarily any better than AMD or Broadcom. Buying Nvidia here is perfectly defensible, but anyone who wants a name that could outperform other chip names or the market by leaps and bounds might want to look elsewhere.
Don't expect Nvidia's stock to be the investment it was in the earlier days of AI.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 14, 2026 14:38 ET (18:38 GMT)
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