Nvidia Stock Is Struggling in 2026, and This Magnificent Seven Stock Can Make Things Worse for the Artificial Intelligence (AI) Giant. Should Investors Hit the Sell Button?

This has been a forgettable year for Nvidia (NASDAQ: NVDA) investors, as the chip giant's 7% gains pale in comparison to the 58% appreciation in the PHLX Semiconductor Sector index so far this year.

Nvidia's underperformance this year has more to do with investor perception than with its financial performance. The company is on track to clock stronger growth in the current fiscal year, and it has a sizable revenue pipeline that should allow it to sustain solid growth in the future as well. However, investors have been looking at other semiconductor stocks rather than Nvidia to capitalize on the AI chip boom, as evidenced by the stock's poor returns in 2026.

It is easy to see why that's the case, especially following a report that suggests Meta Platforms (NASDAQ: META), one of Nvidia's key customers, is going big on its in-house chip development efforts.

Image source: The Motley Fool.

Meta Platforms is looking to reduce its dependence on Nvidia

Reuters reports that Meta Platforms will begin manufacturing an in-house AI chip starting in September. The Magnificent Seven company aims to increase its overall AI compute power to 14 gigawatts (GW) in 2027, relying on an in-house custom AI chip to bolster the AI features powering Instagram and Facebook.

What's worth noting is that the testing of this chip was done in just six weeks, and no major issues were found during this stage. Meta is collaborating with Broadcom to co-design the chip, while foundry giant Taiwan Semiconductor Manufacturing is its manufacturing partner. Moreover, Reuters notes that Meta is planning four generations of in-house processors to support its AI data center infrastructure.

Doing so will allow Meta to design and deploy chips tailor-made to its requirements, thereby reducing computing costs. More importantly, Meta will be able to reduce its dependence on the expensive graphics processing units (GPUs) that it purchases from Nvidia. Meta CEO Mark Zuckerberg noted last year that the social media giant was on track to deploy 1.3 million GPUs by the end of 2025. A significant chunk of them would have been from Nvidia, considering that it controlled an estimated 80% to 90% of the AI chip market until last year.

So, Meta's move to accelerate the deployment of its in-house processors doesn't bode well for Nvidia stock, as it may struggle to emerge from the rut it has been in so far in 2026. Does this mean it is time to start booking profits in Nvidia and look at alternatives to capitalize on the AI chip market's growth? Not necessarily.

Investors shouldn't miss the bigger picture

There is no doubt that a structural shift is underway in the AI chip market, driven primarily by the shift toward inference workloads that can be performed by custom processors that Meta and other hyperscalers are designing. Market research firm TrendForce is anticipating a 45% jump in sales of custom AI processors this year, compared to a 16% jump in GPU sales.

However, Nvidia's numbers defy the perception that GPUs are losing ground to custom chips and central processing units (CPUs) in the inference era. According to tech publication The Information, Nvidia's share of AI inference chips increased by eight percentage points year over year in Q1 to 74%. Its inference revenue exceeded the combined AI revenue of rivals such as Broadcom and Advanced Micro Devices.

This clearly tells us that Nvidia will continue to play a crucial role in AI chips. What's more, even as hyperscalers build in-house chips, they continue to rely on Nvidia's cutting-edge chips to power their AI workloads in data centers. This explains why Meta expanded its agreement with Nvidia in February this year for "the large-scale deployment of Nvidia CPUs and millions of Nvidia Blackwell and Rubin GPUs, as well as the integration of Nvidia Spectrum-X Ethernet switches for Meta's Facebook Open Switching System platform."

So, it can be concluded that Nvidia remains a key cog in the AI infrastructure ecosystem, which is why analysts have become bullish about its earnings growth prospects.

Data by YCharts

The S&P 500 index has an average forward earnings multiple of 21.5, which means investors are getting a good entry point into Nvidia right now as it trades at 23 times forward earnings. It ideally deserves to trade at a premium owing to its market-beating earnings growth rate. But even if this AI stock trades in line with the S&P 500's average and its earnings per share reach $16.06 in the next three years, its price could jump to $345.

That's a potential upside of 70%, which is why investors shouldn't panic and should continue to hold Nvidia, as it could become a long-term winner.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Meta Platforms, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.