What Happens to Nvidia Stock If the AI Build-Out Slows Down? Here's My Answer.

When looking at the recent earnings increases from some of the most prominent growth stocks, the effect of artificial intelligence (AI) is nothing short of spectacular. Although such numbers do not reflect the entire company, Microsoft reported 40% Azure cloud growth yearly, and 63% for Google's parent company, Alphabet.

For now, most of that growth depends on AI and, by extension, the AI accelerators designed by Nvidia (NASDAQ: NVDA). That fostered 65% revenue growth for the company in fiscal 2026 (ended Jan. 25).

Nonetheless, as longtime chip-stock investors know, the industry is cyclical, and an eventual downturn is inevitable. Thus, a question for investors is what happens to Nvidia stock if AI growth slows down? Let's take a closer look.

Nvidia headquarters. Image source: Nvidia.

Nvidia and a slowdown

Ultimately, what happens to the chipmaker's stock if AI growth ultimately slows is anybody's guess. However, the answer is likely to vary between little change and a mild bear market, defined as a pullback of 20% or more.

That answer may surprise investors who have seen the stock rise by almost 1,600% from its October 2022 low. Also, many other semiconductor companies are making AI chips of their own. While that may not challenge its leadership, it could reduce its market share.

Nonetheless, the argument for a relatively modest pullback makes more sense when looking at the overall financials. Investors have to remember that its size is already creating headwinds for the stock.

Nvidia's market cap is around $4.8 trillion as of the time of this writing, the highest in the stock market. This means a doubling of its value takes its market cap to $9.6 trillion, a huge feat when no company has yet reached $6 trillion. That mathematical reality could discourage investors looking for another 1,600% increase.

Consequently, despite 65% revenue growth, it sells at a trailing price-to-earnings ratio (P/E) of 40 and a forward earnings multiple of just 24. This means that if Nvidia's stock loses 25% of its value over the next 12 months, its P/E would presumably fall to 18, possibly taking it into value stock territory.

For that earnings multiple to make sense, AI growth would have to nearly come to a halt, a scenario that appears highly unlikely in today's market. For this reason, long-term investors are likely to see any slowdown as a cyclical event rather than any occurrence that hurts the stock's long-term thesis.

Stay the course with Nvidia stock

Ultimately, AI growth will slow eventually, and it could have a mildly negative effect on the stock. Knowing that, investors might even have good reason to not buy Nvidia right now.

However, this possibility does not justify selling. For one thing, at least for now, AI growth is holding its own, as evidenced by Microsoft's and Alphabet's results.

Moreover, Nvidia's valuation is likely on the way down, so much so that it will probably limit the downside of the stock should an AI slowdown occur without warning. Hence, if investors already own the stock, they are likely best off holding their position.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.