Top 3 Risks Facing the NVIDIA Stock Price

NVIDIA stock price has stalled under the important resistance of $200 as investors wait for its financial results and assess the progress of its Chinese business. NVDA was hovering near its all-time high, up by 30% since January. This article looks at some of the top risks facing the company.

AI Data Center Spending to Slow

The main reason why the NVIDIA stock price has surged in the past few years has been the increased spending on data centers as demand for artificial intelligence jumps.

Top hyperscalers, including Microsoft, Amazon, and Google, estimated to spend over $440 billion on data centers in 2024. They have already spent $155 billion this year, and estimates are that the figure will surpass $300 billion.

McKinsey believes that the spending boom has room to go, with data centers projected to require $6.7 trillion by 2030. Most of this spending will go to data centers equipped to handle AI workloads.

All these are good signals for NVIDIA, a company that dominates in the industry. NVIDIA wins because of its advanced chips and its CUDA software, which allows software to use its GPUs for accelerated general purposes.

However, there is a risk that the spending will start to slow as companies start to focus on profitability. These hyperscalers are under pressure to show the returns on their investments after all their investments.

For example, despite the AI boom, no major AI company has been able to generate robust profitability so far. For example, OpenAI expects to make a $5 billion loss this year. Similarly, Elon Musk’s xAI is expected to lose $13 billion this year.

Therefore, these dynamics could negatively impact NVIDIA’s growth and its stock in the future unless it comes up with a new major theme.

NVIDIA Stock Price Technicals Point to a Pullback

In a recent article, we identified a few technical risks facing the NVDA stock this year. The first major risk is that the top oscillators like the Relative Strength Index (RSI) and the MACD, have started to form a bearish divergence pattern.

A bearish divergence happens when oscillators move downwards as a stock or other asset rallies. It is often followed a bearish breakout over time.

The stock is also at risk of mean reversion, where a stock drops so that it can align with its short-term and long-term moving averages. Additionally, it may form a break-and-retest pattern and falls to the support at $152.

China NVIDIA Stock Market Share Loss

The other major NVIDIA stock price risk is that it could lose its market share in China, even after Donald Trump allowed it to ship its H20 chips to the country. He is also considering allowing it to sell its BlackWell chips there.

The risk, however, is that the Chinese technology industry has noted the importance of being self-reliant. Indeed, data shows that the industry spent over $55 billion in R&D in the first half, a number that may continue growing.

Some companies like Huawei and Semiconductor Manufacturing International Corporation (SMIC) have made strong progress in the area. For example, Huawei’s CloudMatrix is powerful and is gaining market share in the country.

NVDA stock price faces other risks, including the fact that it is a highly overvalued company trading at a forward PE multiple of 40, higher than most companies.

Summary

NVIDIA has grown to become the biggest company in the world because of the ongoing artificial intelligence hype. This growth has more room to run, with analysts expecting its upcoming revenue to be $4 billion, 52% increase from the same period last year.

The average estimate is that its annual revenue this year and in 2026 will be $201 billion and $255 billion, respectively. The company is also highly profitable and is repurchasing its stock with billions. However, as a highly saturated company, there is a risk that it will pull back in the coming weeks or months.