Nvidia Stock Is Barely Beating the S&P 500 Index in 2026 Despite Record Revenue. Here's What This Performance Might Suggest.
Key Points
Nvidia's revenue soared 85% year over year in the second quarter to reach a record $81.6 billion, as AI spending shows no sign of letting up.
The company’s key customers, known as hyperscalers, all have their own in-house custom chips.
This leading AI stock’s current valuation might be too hard to pass up.
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Nvidia (NASDAQ: NVDA) has been on an incredible run in recent years. Shares have skyrocketed 978% since late July 2021 (as of July 22), a gain no investor can complain about.
But this leading artificial intelligence (AI) stock has slowed down. It's up 12% in 2026, barely beating the S&P 500 index. Investors have come to expect more from Nvidia. Here's what its muted performance so far this year might suggest.
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How durable is Nvidia's success?
To be clear, a 12% price gain in less than seven months isn't anything to be disappointed by. It's just that because the stock rose 39% in 2025, 171% in 2024, and 239% in 2023, the investment community -- which has been primed to have persistently high expectations -- might be worried that slower returns are a sign of what's to come. It's impossible to know if this is the case, though.
Nvidia's business continues to fire on all cylinders. Revenue surged 85% year over year in the 2026 second quarter (ended April 26) to $81.6 billion, establishing a fresh record. Demand is off the charts, as hyperscalers keep spending aggressively to build data centers for AI training and inference. The innovation pipeline is robust, and the company's profitability is incredible.
According to management, the future could not be brighter. "AI infrastructure spending is on track to reach $3 trillion to $4 trillion annually by the end of this decade," chief financial officer Colette Kress said on the latest earnings call. As long as the AI spending boom continues, Nvidia will benefit.
But that draws attention to what may be the biggest question the market has. And this relates to the durability of its success. The hyperscalers are developing their own custom chips in-house to lessen their dependence on Nvidia's powerful graphics processing units (GPUs). Even though the demand is strong today, this introduces a long-term risk as Nvidia's most important customers seek an exit strategy.
What's more, AI-related capital expenditures could drastically come down if the ultimate returns don't live up to expectations. This is a huge unknown.
Wall Street also expects sales gains to decelerate. Sell-side consensus estimates call for revenue to increase 219% between fiscal 2026 and fiscal 2029, a significantly slower pace than the 700% reported in the prior three years.
This AI stock's valuation is compelling
Nvidia shares currently trade 10% off their peak, as investors take a breather. The valuation is very compelling: The stock can be bought right now at a forward price-to-earnings ratio of 23.6, representing a small 10% premium to the S&P 500 index.
It might be too hard to pass on buying this AI stock, even incorporating the risks mentioned.
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Neil Patel 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.
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