This Could Be a Huge Catalyst for Nvidia's Business in 2026

Nvidia (NASDAQ: NVDA) has been a powerhouse stock to own in recent years. Every time its valuation looks like it's getting a bit expensive, the stock continues to rise even higher. As of Tuesday's close, the stock was up 38% since the start of the year. It's especially impressive when you consider that it soared 171% last year and 239% the year before that.

While the returns have slowed, they are still incredible. By comparison, this year, the S&P 500 has risen by 16%. Heading into 2026, investors may expect another slowdown for the world's most valuable company, whose market cap sits at $4.5 trillion right now.

But there could be a catalyst around the corner, which could make 2026 another stellar year for Nvidia.

Image source: Getty Images.

Could Chinese chip sales give Nvidia a boost in 2026?

This month, the U.S. government has given Nvidia the OK to sell its H200 artificial intelligence (AI) chips to certain customers in China. It will be available only to "approved customers," and the U.S. government will take a 25% cut of the sales. The deal will apply to other chipmakers as well. It's a huge development for Nvidia, which has largely excluded China from its guidance due to the uncertainty around export restrictions.

Previously, the U.S. agreed to allow Nvidia to sell its H20 chip to China in exchange for a 15% cut of sales. That failed to drive growth, however, as the Chinese government banned tech companies from buying them, due to concerns about their security and reliability. The H200 chips, which are much more advanced and around six times faster than the H20 chips, however, may be too compelling to pass up.

Nvidia's valuation is high, but a strong growth rate makes the stock look modestly priced

Currently, Nvidia's stock trades at a forward price-to-earnings multiple of 24, based on analysts' expectations for future profits. That's a bit higher than the S&P 500 average of 22, but not by much. However, if there is an increase in guidance next year as a result of strong demand from China for the H200 chips, that could drastically change things for Nvidia.

Previously, Nvidia CEO Jensen Huang estimated that the Chinese AI market could be worth as much as $50 billion within two to three years. That would be a massive opportunity to tap into and could help accelerate Nvidia's growth rate, resulting in stronger expectations, leading to analyst upgrades and a more attractive valuation overall, when considering the growth prospects.

In its most recent earnings report for the quarter ended Oct. 26, Nvidia's revenue totaled $57 billion, up 62% from the same period last year. That's a strong growth rate already, and if chip sales to China take off, it may potentially rise higher next year.

Is Nvidia's stock a good buy heading into 2026?

Nvidia is the market leader in AI chips, which are crucial for tech companies to build the latest and greatest AI models and products. Even though the stock may be the most valuable in the world today, it's arguably worth the premium given how important Nvidia has become to the global AI revolution.

I do think it's important for investors to temper their expectations not just for Nvidia but for the overall markets next year, as there is a possibility of a pullback in AI spending, at least temporarily, if the economy slows. However, with Nvidia being an unstoppable business in AI, it's hard not to like it as a long-term investment.

Although its gains may be more modest next year, Nvidia's stock still looks like a solid buy in 2026, as it can continue to outperform the market. And any growth related to the Chinese market could give it an added boost.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.