Coming into last year, US chip giant Nvidia (NASDAQ: NVDA) had already had a brilliant 12 months. Business growth was outstanding and Nvidia stock had been a strongly-performing market darling. Many investors had some scepticism about how it might fare last year.
From the start of 2025 until around the end of December, though, Nvidia stock soared by 39%.
With a market capitalisation of a staggering $4.5trn, it is not only the most valuable listed firm today; Nvidia also holds the crown as the most valuable listed firm in history.
The weight of expectations sits heavily on many companies. But might it just be possible that the stock does it again and puts in yet another brilliant performance in 2026?
Reasons for optimism
I think it is possible.
Nvidia did not become the US stock market’s biggest company simply by having a compelling sales pitch and riding a wave of hype about AI.
It has spent decades designing chips. Its industry expertise, proprietary designs and deep experience are all competitive strengths.
The business was solidly successful even before the AI hype took off.
Success is no accident
Nvidia was in the right place at the right time not by accident, but thanks to a carefully crafted and executed corporate strategy that has consistently seen its business perform well over several decades.
It is now a hugely profitable and cash flow generative business.
Its most recent quarter saw revenues grow 62% year on year to $57bn. Operating free cash flow jumped 35% to $24bn.
Those are huge numbers — and stellar growth rates.
The size of the operating cash flow, relative to revenue, also indicates that Nvidia’s business model has the benefit of offering strong profit margins.
2026 could see the party continuing
Clearly, business is strong.
Nvidia has carved out a unique position in the chip industry. With its track record of delivery, large installed user base and world-leading knowhow, I expect it to keep doing well.
But there are risks to this growth story.
One is that AI spending could fall compared to the boom we have seen over the past several years. For example, companies may decide that the business case for huge AI-related expenditure is not strong enough to justify it.
Can high selling prices last?
Another risk is that a competitor could come out with a rival chip design that delivers a lot of Nvidia’s capability at a fraction of the cost.
That has been a consistent hallmark of how many tech markets have developed in the past, with initially high selling prices tumbling over time as the technology gets a lot cheaper.
Currently selling for 46 times earnings, I do not think Nvidia stock offers me the right margin of safety for such risks.
So, although I do believe that the Nvidia stock price may soar again this year, at the current level I have no plans to invest.
