Nvidia Is a Top AI Stock, but Don’t Ignore These 4 Red Flags

Nvidia‘s (NASDAQ: NVDA) stock has rallied more than 600% over the past two years. Most of that rally was driven by the growth of the artificial intelligence (AI) market, which boosted its sales of data center GPUs for processing complex AI tasks.

The market’s insatiable demand for its data center chips continues to outstrip its available supply, and analysts expect Nvidia’s revenue to increase at a compound annual growth rate (CAGR) of 45% from fiscal 2024 to fiscal 2027 (which ends in January 2027). They expect its earnings per share (EPS) to rise at a CAGR of 51%.

Image source: Nvidia.

So even though Nvidia is already worth more than $3 trillion, it could still have plenty of room to run. But before investors buy this high-flying stock, they should pay attention to these four red flags that could unexpectedly end its historic rally.

1. It’s become an all-in play on AI chips

Back in fiscal 2022 (which ended in January 2022), Nvidia generated 46% of its revenue from its gaming GPUs, 39% from its data center GPUs, and the rest from its professional visualization, auto, and OEM chips. However, that product mix completely changed over the following two years as its sales of data center chips eclipsed its gaming chips.

In the first quarter of fiscal 2025, Nvidia generated 87% of its revenue from data center chips, 10% from gaming chips, and the remaining 3% from its other categories. It generated $22.6 billion in data center revenue in that single quarter compared to its total revenue of nearly $27 billion for all of fiscal 2023. That breakneck expansion transformed Nvidia from a more diversified GPU maker to an all-in play on AI chips.

That’s fine if you believe Nvidia will continue dominating the AI market as it expands. But if the AI market abruptly cools off, Nvidia’s chip shortage could quickly become a supply glut. If its data center business sputters out, it can’t fall back on the growth of its gaming segment and other smaller divisions to soften those year-over-year comparisons.

2. It faces unpredictable regulatory challenges

Nvidia’s overwhelming dependence on the…


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