Thinking Nvidia Stock Could Hit $10 Trillion? Here's 1 Reason I'd Be Cautious

Could Nvidia (NASDAQ: NVDA) become a $10 trillion company?

That's a reasonable question to ask. Nvidia sits at the center of the artificial intelligence boom, supplying the chips and systems that power AI data centers. As a result, its revenue and profits have grown at extraordinary rates as companies race to build AI infrastructure.

But I'd be cautious about assuming the stock can keep delivering spectacular returns. My biggest concern is that Nvidia's largest customers are also becoming its competitors. If they succeed in developing their own AI chips, Nvidia could lose some of its pricing power over time.

That matters because Nvidia needs both growth and pricing power to maintain a substantial share of AI computing spending.

Image source: Getty Images.

Nvidia's customers want alternatives

Consider Nvidia's biggest customers: Microsoft, Amazon, Alphabet, and Meta.

These technology giants are spending enormous sums building data centers to train and run AI models. To put it into perspective, these four companies are projecting $760 billion in capex this year. Much of that spending benefits Nvidia, which sells the graphics processing units (GPUs) and networking equipment needed to power these facilities.

But buying Nvidia's hardware comes at a massive cost, so unsurprisingly, these companies have strong incentives to find cheaper, more efficient ways to run their AI workloads. One solution is to develop their own chips.

Google has its Tensor Processing Units, or TPUs, Amazon has its Trainium chips, and Microsoft is developing its Maia family of AI accelerators. The logic is straightforward. If a cloud provider can run an AI workload more efficiently with its own chip, it may reduce costs and improve profitability.

For investors, that's the risk worth watching: Nvidia's customers have a financial incentive to become less dependent on Nvidia.

Why this matters for Nvidia's valuation

Nvidia's recent financial results show just how powerful its business has become.

In its second quarter of fiscal 2027, revenue surged 106% year over year to $96.2 billion. Data Center revenue grew 117% to $89 billion, while gross margin reached 75%. These numbers demonstrate Nvidia's enormous advantage today. Its products remain in strong demand, and its software ecosystem makes its platform difficult to replace.

But today's success doesn't guarantee that Nvidia will maintain the same economics indefinitely. If customers increasingly turn to their own chips for certain workloads, Nvidia may face greater pressure to compete on price, efficiency, and performance. It could still grow rapidly, but its growth or profit margins might eventually fall short of optimistic investors' expectations.

That distinction matters when considering a $10 trillion valuation. Assuming the investor is willing to pay a 25x price-to-earnings (PE) ratio for the stock in the long run, Nvidia needs to generate $400 billion in net profit. In fiscal 2026 (ended Jan. 25, 2026), Nvidia's net income was $120 billion.

To be fair, Nvidia's latest quarterly revenue was close to $60 billion -- or annualized at $240 billion -- so the $400 billion net profit doesn't seem too far-fetched. But assuming the demand for Nvidia's products will continue to grow at these levels may be too optimistic. In particular, if its customers capture more of the economic benefits of AI computing, Nvidia might struggle to deliver the earnings growth investors anticipate.

In other words, the risk isn't necessarily that Nvidia's business will shrink, but rather that the company could become much bigger without becoming as profitable as the market expects.

The bull case remains strong

Nvidia remains a remarkably strong business. Its CUDA software ecosystem, networking technology, and integrated computing systems make its products difficult to replace. Building a custom chip is one thing; creating an entire platform that developers want to use is another.

And Nvidia's customers could continue buying its products while developing alternatives. AI demand may grow quickly enough for both Nvidia and custom-chip providers to thrive. So, the rise of custom chips doesn't automatically mean Nvidia will lose its leadership. The question is just how much of the industry's future growth Nvidia can capture and how much profit it might retain.

What does it mean for investors?

Nvidia reaching a $10 trillion market capitalization isn't impossible. Its technological advantages and exposure to AI give it an enormous opportunity. But I wouldn't assume that today's growth rates and profit margins will continue indefinitely.

As Nvidia's biggest customers develop their own chips, investors should watch whether these alternatives begin to capture a meaningful share of workloads that would otherwise run on Nvidia hardware. That's the risk I would watch before betting on a $10 trillion valuation.

Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.