Key Takeaways
• Nvidia’s most significant threats stem from internal dynamics—not international tariffs.
• Major customers are developing in-house AI chips, challenging Nvidia’s market dominance.
• Investor overexuberance in AI may mirror past tech bubbles, raising valuation risks.
• Declining margins and aggressive product cycles could impact long-term profitability.
While trade tensions and tariff shifts dominate headlines, Nvidia’s recent stock turbulence reveals deeper concerns that extend beyond geopolitical headlines.
As global attention focuses on the implications of President Donald Trump’s new tariff initiatives, a closer analysis shows that Nvidia’s most pressing challenges are internal—centered on customer behavior, AI market dynamics, and valuation risks.
Tariffs: A Real, But Secondary Risk
In early April 2025, the U.S. administration announced sweeping tariff adjustments, termed “Liberation Day” policies, introducing economic uncertainty across sectors. Initially, chip imports from Taiwan—where Taiwan Semiconductor Manufacturing Company (TSMC) produces advanced processors essential to Nvidia—were included.
However, the White House quickly clarified that chips and chipmaking equipment would be excluded from these reciprocal tariffs.
Although Nvidia does not directly import from China, the Chinese market is vital to its sales.
Any retaliatory measures by Beijing, such as reduced demand for American AI hardware, could still affect Nvidia’s financials. Nonetheless, analysts assert that these are not the most urgent concerns facing the AI hardware leader.
Internal Competition: A Rising Strategic Threat
Nvidia’s relationships with Big Tech have historically been among its strongest assets. However, many of these same companies are now developing their own AI chips.
This internal competition from major customers represents a new strategic risk that could directly impact Nvidia’s core business.
• Leading companies like Microsoft, Amazon, and Google are building custom AI chips.
• These chips are cheaper and more readily available than Nvidia’s backlogged GPUs.
• Nvidia could lose future orders and pricing power, weakening its market stronghold.
As a result, Nvidia faces the paradox of competing with the very clients that helped establish its data center dominance. This internal shift threatens not only its sales volume but also its gross margins, which are already showing signs of erosion.
The AI Hype Cycle: Lessons from Tech History
Over the past three decades, investor enthusiasm has propelled numerous “next-big-thing” technologies—most of which eventually encountered corrections when market expectations outpaced adoption realities. The AI boom may be heading in the same direction.
• Businesses are heavily investing in AI infrastructure.
• ROI from these investments remains unclear and slow to materialize.
• History shows that inflated expectations often trigger sharp market pullbacks.
While AI will almost certainly remain integral to future innovation, the near-term monetization and operational use cases are still evolving. Nvidia, as the most visible AI hardware provider, stands at the center of this potential revaluation.
Valuation and Margin Pressures Mount
Nvidia’s stock valuation has reached historic highs, with its price-to-sales (P/S) ratio peaking above 42 in mid-2024.
Though this metric has since declined to around 21, it remains well above its industry peers, including other high-growth “Magnificent Seven” stocks.
This elevated valuation is coinciding with declining GAAP gross margins. After hitting 78.4% in fiscal Q1 2025 (ended April 2024), margins have dropped in consecutive quarters and are forecasted to fall to approximately 70.6% in the current fiscal quarter.
• Nvidia’s valuation still exceeds most competitors, even after recent corrections.
• Gross margins are declining amid normalized supply and internal competition.
• Aggressive product cycles are reducing hardware longevity and upgrade incentive.
The strategy of annual AI-GPU releases, while innovative, may be encouraging customers to delay purchases or skip upgrades, especially if last-generation products remain highly capable.
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