Why Is Nvidia Stock Underperforming in 2026?

Core Viewpoint - Investors are concerned about the sustainability of the AI boom and the potential threat posed by increasing competition, despite Nvidia's strong financial performance and growth guidance for the upcoming quarter [1][2]. Group 1: Nvidia's Performance and Market Position - Nvidia's stock has seen a 2% decline year-to-date, contrasting with the flat returns of the S&P 500, despite impressive financial results and growth forecasts [1][2]. - The company reported accelerating top-line growth in its most recent fiscal quarter, indicating strong demand for its products [1]. - Nvidia is expected to benefit from significant capital expenditures by major tech companies on AI, which is its core business area [2]. Group 2: Concerns Over AI Investment Sustainability - There is significant investor unease regarding the scale of AI investments by tech giants, which may indicate overly optimistic sentiment towards AI [4][5]. - Amazon plans to spend approximately $200 billion on AI, while its trailing-12-month free cash flow was only $11.2 billion, raising concerns about the sustainability of such spending [5]. - The rapid growth of in-house AI chip programs by tech giants like Amazon, Alphabet, and Microsoft may pose a threat to Nvidia's market share and pricing power [7][9]. Group 3: Competitive Landscape and Pricing Pressure - Amazon's in-house chip business has an annual revenue run rate exceeding $10 billion, and its AI chip Trainium2 is gaining traction in the market [7]. - If Amazon successfully reduces AI chip costs, it could lead to increased competition for Nvidia, as customers may opt for cheaper alternatives [9]. - The valuation of Nvidia is a concern, with a current price-to-earnings ratio of 45 and a forward price-to-earnings ratio of 24, suggesting potential overvaluation if market conditions change [10][11]. Group 4: Overall Assessment - Despite the risks and recent stock underperformance, Nvidia is recognized as an innovative company executing well in the AI space [12].