AI Stock Soars: Still a Smart Buy After Massive Rally?
AI stocks are rewriting the market playbook—again. After explosive gains that left traditional investors scrambling, the big question echoes through trading floors: Is there still room to run?
The Rally That Defied Gravity
Shares have catapulted past previous resistance levels, leaving analysts divided. Some see sustainable momentum while others spot bubble territory. The numbers don't lie—this isn't your grandfather's blue-chip movement.
Behind the Algorithmic Surge
Institutional money floods the sector, chasing the next paradigm shift. Retail traders pile in, fueled by FOMO and margin accounts. The pattern feels familiar to anyone who lived through the dot-com era—minus the dial-up modems.
Risk Versus Revolutionary Potential
Every portfolio manager faces the same dilemma: chase performance or watch from the sidelines. The volatility could shake out weak hands, while true believers double down on the AI transformation story.
Wall Street's latest darling either represents the future of computing—or another case of investors overpaying for buzzwords while ignoring fundamentals. Some things never change.
Why the bulls still love Nvidia
The bulls will tell you that Nvidia still sells the best picks and shovels for the AI Gold rush, and that feverish demand won't wane anytime soon. From 2025 to 2035, Grand View Research expects the global AI market to expand at a CAGR of 31.5% as more companies develop new AI products and services.
Nvidia controls more than 90% of the discrete GPU market, according to JPR, and its AI GPUs are widely considered the "best in breed" chips for AI applications. It reinforces that dominance with its proprietary CUDA (Compute Unified Device Architecture) programming platform. When developers write their AI applications in a common parallel code (like C++ or Python) on CUDA, those programs become optimized for Nvidia's GPUs but can't run on its competitors' chips.
Nvidia's top-tier Blackwell GPUs face some competition from's (AMD -0.52%) cheaper Instinct MI300X GPUs in the data center market. However, its Blackwell chips still outperform the MI300X in handling most large-scale AI and high-performance computing (HPC) workloads. It also locks in its top customers -- includingWeb Services (AWS), Microsoft Azure, and's Google Cloud -- with sticky strategic partnerships to widen its moat against AMD and other potential competitors.
From fiscal 2025 to fiscal 2028, analysts expect Nvidia's revenue and earnings per share (EPS) to both grow at a CAGR of 36% as it continues to dominate the AI chip market. At $183, its stock still looks reasonably valued at 30 times next year's earnings.
Why the bears are wary of Nvidia
The bears will warn you about Nvidia's exposure to the messy tariffs and trade conflicts, AMD's new AI deals, and a potential slowdown of the broader AI market.
U.S. regulators already blocked Nvidia from shipping its top-tier A800 and H800 data center GPUs to China in late 2023, and they expanded that ban to include its less powerful H20 variant chips this August. China's regulators then barred its own companies from buying Nvidia's chips in September. That ongoing conflict will significantly reduce Nvidia's sales to China, which accounted for roughly 17% and 13% of its revenue in fiscal 2024 and fiscal 2025, respectively.
Some of Nvidia's top customers, includingand OpenAI, also recently struck new AI infrastructure deals with AMD. Those deals suggest that some AI companies are eager to curb their dependence on Nvidia, diversify their AI infrastructure with other types of chips, and reduce their long-term expenses with AMD's more cost-efficient chips. So, while AMD is still a distant underdog in the AI GPU market, it could chip away at Nvidia's dominance -- just as it did toin the x86 CPU market over the past decade.
Lastly, the AI market's breakneck growth could be throttled by tighter government restrictions -- especially with regard to its usage of copyrighted materials, its displacement of human workers, and privacy concerns. If those tighter restrictions coincide with a broader economic slowdown, big AI companies could dial back their aggressive GPU purchases.
Which argument makes more sense?
Over the next five years, I doubt Nvidia can replicate its multibagger gains from the previous five years. But it's still growing like a weed, it has plenty of irons in the fire, and it doesn't look overvalued relative to its growth potential. Investors should keep an eye on its competitive and regulatory threats, but I believe it's still worth buying at these levels.
