The recent surge in valuations attached to companies dealing in what is termed ‘artificial intelligence’ has been noticeable, if not entirely logical. Nvidia, a manufacturer of graphics processing units, has been particularly favored by the market. Last year presented various obstacles – anxieties concerning spending on these technologies, the threat of tariffs, and the ever-present murmur of a speculative bubble. Nevertheless, a prediction concerning Nvidia’s performance in 2025 proved, as these things sometimes do, to be accurate.
It was anticipated that the company would maintain a gross margin exceeding seventy percent, and this, in fact, occurred. The share price advanced by thirty-eight percent. A simple calculation, but one that has captivated a considerable number of investors.
Now, the question is not whether Nvidia has done well, but whether this can continue. To pretend that the future will mirror the past is a common, and often disastrous, error.
The Headwinds Remain
Last year’s gains were not achieved without difficulty. Beyond the general market anxieties, the United States imposed restrictions on the export of chips to China, effectively barring Nvidia from a significant market. This initially reduced the company’s gross margin, necessitating a write-down of a billion dollars worth of unsaleable inventory. The market, predictably, did not dwell on this for long.
Despite this setback, the gross margin recovered, and revenue continued to climb, accelerating in the most recent quarter to a sixty-two percent increase. This was driven by demand for Nvidia’s graphics processing units, now frequently referred to as ‘AI chips.’ The company has maintained its position through continuous, incremental innovation – a sensible approach, but one that is unlikely to yield dramatic, sustained gains indefinitely.
This momentum, however, should not be mistaken for invulnerability. It merely outweighed the existing pressures, securing another year of profit. A temporary respite, perhaps, rather than a fundamental shift.
Volatility on the Horizon
As 2026 begins, the question is whether this upward trend will persist. External factors, such as further export controls, could certainly impede progress. However, even without such interventions, a continuation of the current trajectory appears improbable. The prevailing environment of inflated valuations is unsustainable. At some point, the market will demand justification for these prices, and Nvidia, like all companies, will be subject to scrutiny.
Investors, increasingly aware of the possibility of a speculative bubble in ‘AI’ stocks, may become less willing to commit capital to companies so heavily reliant on this sector. A prudent caution, one might suggest, rather than irrational fear.
Nvidia is expected to continue delivering earnings growth, and the recent decision to allow exports to China may provide a short-term boost. However, these factors are unlikely to alter the underlying reality: the path forward will be far from smooth. The market is a relentless judge, and sentiment can change quickly. To assume otherwise would be a dangerous delusion.
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2026-01-28 12:12