Why Nvidia Stock (NVDA) is Entering its Most Dangerous Phase

Nvidia’s (NVDA) run has been both powerful and lucrative. As the key supplier of accelerated computing infrastructure for today’s AI and data-center workloads, it’s no surprise that it’s become one of the market’s most in-demand stocks. NVDA has eclipsed all its peers and the market as a whole at a clip of 9x over the past three years.

At this stage of the cycle, though, forward returns will hinge on where NVDA stands in the AI capital-spending cycle—and how much of that upside is already reflected in the valuation. The biggest risk is multiple compression that can occur before any visible slowdown in reported earnings, because expectations are often the most fragile variable. For now, I’m neutral on NVDA.

Booming Business Remains Highly Concentrated

For Q3 of Fiscal 2026, NVDA disclosed four direct customers that each accounted for more than 10% of total revenue: Customer A (22%), Customer B (15%), Customer C (13%), and Customer D (11%), with the latter tied to Compute & Networking. Over the first nine months of Fiscal 2026, NVDA reported two direct customers contributing 21% and 13% of revenue, respectively. For investors with heavy NVDA exposure, this concentration matters: if AI-related capex begins to normalize or “digest” among a handful of major Big Tech buyers, the stock could re-rate lower—and quickly.

To be clear, AI capex is both real and justified by end-market demand, unlike the dot-com era when fiber buildouts vastly outpaced adoption. Still, capex is inherently cyclical. Even if customers keep spending large absolute dollars, the pace of incremental deployment can slow as utilization increases, integration constraints emerge, and ROI evaluation becomes more stringent. A meaningful drawdown in the stock does not require demand to collapse—only a shift from “scale at all costs” to optimization and efficiency.

NVDA’s customer mix amplifies this risk. When such a large share of revenue is driven by a small set of buyers, even modest changes in their ordering patterns can disproportionately impact reported growth. And because these deployments depend on more than GPUs—data center space, power availability, networking, cooling, and staffing—real-world bottlenecks can delay rollouts even if long-term strategic priorities stay intact.

For long-term NVDA investors, the key questions are: (1) how smooth does the order trajectory look once the earliest, most aggressive deployments are completed? (2) how quickly does the buyer base expand beyond the largest customers? and (3) how do growth expectations reset during an optimization and capacity-digestion phase? In my view, downside risk now outweighs upside potential at this stage of the cycle, which is why I remain neutral on the stock for the time being.

NVDA is Embedded in an Elevated Valuation Environment

FactSet puts the S&P 500’s forward 12-month P/E at 22.2—well above both its 5-year average of 20 and its 10-year average of 18.7. Cyclically adjusted valuation metrics are also stretched versus long-run history, coming in around 40 versus a long-term median near 16. In this setup, the market has little room for error: when expectations are this high, tolerance for disappointment is low, and the risk/reward profile becomes increasingly asymmetric.

A growing share of high-growth equity value is driven by cash flows expected far into the future, making these stocks especially sensitive to shifts in discount rates and small changes in growth assumptions. During valuation compression, the most crowded, cyclical, long-duration names tend to crack first—not because the businesses suddenly break, but because they carry the most embedded optimism. When heavy index and portfolio ownership are added, selling can become flow-driven rather than fundamentals-driven.

With NVDA positioned at the most capital-intensive choke point of AI adoption—supplying the training and inference infrastructure—any deceleration in capex growth rates makes it the obvious candidate for an expectations reset. If that reset happens, a sharp repricing could follow.

What Would Invalidate the Bearish Setup 

If NVDA’s revenue mix shows a meaningful broadening of the buyer base, thereby reducing its reliance on a small number of direct customers, then the cyclicality risk will diminish. This is because its customer concentration is currently very high. 

It’s reasonable to posit that the largest AI spenders could also demonstrate measurable monetization, such as revenue uplift and durable cost reduction, which could support ongoing acceleration in infrastructure spend. However, this is a high-risk position and requires perfect execution by Big Tech and remarkably well-aligned demand from end consumers, which is unlikely, though not impossible. 

Is NVDA a Good Buy Right Now?

On Wall Street, NVDA has a consensus Strong Buy rating from top analysts based on 39 Buys, one Hold, and one Sell rating obtained over the past three months. The average NVDA price target of $264.97 implies ~43% upside potential over the next 12 months.

See more NVDA analyst ratings

Although this is a bullish outlook that’s hard to ignore, it’s important to remember that consensus often only “breaks” in a cycle once the price starts moving down. That likely won’t happen in 2026, but it’s probable in 2027 and at the latest, 2028, in my opinion. 

NVDA is Late in the Cycle

I’ll admit it’s easy to believe NVDA can just keep climbing indefinitely. But I can’t personally put capital behind that thesis—the risk is simply too high. Broader market valuations are flashing a classic “be fearful when others are greedy” signal, and NVDA’s customer concentration means the company needs near-perfect demand conditions to keep playing out smoothly. Sentiment may be overwhelmingly bullish today, but that can shift quickly. For now, I’m staying neutral on NVDA and leaning instead toward steadier areas like healthcare and defense.