Although President Donald Trump's tariff policy has dominated the discussion on Wall Street over the last six weeks, it's the evolution of artificial intelligence (AI) that's captivated investors for well over two years.
In its simplest form, AI empowers software and systems with the capacity to reason and act on their own, as well as affords the potential to learn new skillsets without the need for human oversight. It's a game-changing technology with broad global application that the analysts at PwC believe can increase worldwide gross domestic product (GDP) $15.7 trillion by 2030.
Image source: Getty Images.
No company has more directly benefited from the AI revolution than Nvidia
Almost overnight, Nvidia's Hopper (H100) graphics processing unit (GPU) became the preferred "brains" powering enterprise AI-accelerated data centers. This has been followed up by the next-generation Blackwell GPU architecture, which can further expedite compute needs and is more energy efficient than its predecessor.
In just two fiscal years (Nvidia's fiscal year ends in late January), Nvidia's net sales skyrocketed from $27 billion to $130.5 billion. For context, Wall Street's consensus calls for nearly $201 billion in full-year sales for fiscal 2026 (this year) and $248 billion in fiscal 2027.
Given Nvidia's supercharged growth rate and the fact that no other direct competitor has come remotely close to matching its combination of compute speed and energy efficiency, it's no surprise that Wall Street analysts have rallied around the stock market's AI darling. In late January, I noted that the dozens of Wall Street analysts covering Nvidia all had respective price targets that was higher than where shares then traded.
But times are a-changing!
Nvidia just received its first Wall Street sell rating -- and after May 28, which is the date Nvidia will unveil its fiscal 2026 first-quarter operating results, I fully expect more analysts to follow suit.
One Wall Street analyst is bucking popular sentiment
In late April, Seaport Research Partners' senior analyst Jay Goldberg initiated coverage on Nvidia with a $100 price target (a Wall Street low) and a sell rating.
Though Goldberg acknowledged that Nvidia has done a lot right and its Blackwell GPU is highly sought-after, he believed the bull case was fully priced in, with numerous downside catalysts waiting in the wings.
For one, Goldberg believes it'll be difficult for Nvidia to surpass Wall Street's lofty consensus expectations given that it's maxed out its order capacity for Blackwell in fiscal 2026. Even though world-leading chip fabrication company Taiwan Semiconductor Manufacturing is rapidly expanding its chip-on-wafer-on-substrate (CoWoS) capacity -- CoWoS is essential for the packaging of high-bandwidth memory needed in AI-accelerated data centers -- it's still holding Nvidia back from selling even more of its next-gen hardware.
Goldberg also anticipates that businesses will take a hard look at their spending later this year and into calendar year 2026. While Seaport's senior analyst doesn't expect an AI bubble to form and burst, he does believe that businesses are still in the process of feeling out real-world use cases for artificial intelligence. Goldberg suggests this will result in slower AI spending/orders in the quarters to come.
Additionally, and not surprisingly, Goldberg alluded to export restrictions to China as a front-and-center headwind. As a reminder, the Joe Biden Administration (since October 2022) and Trump administration placed stringent export restrictions on many high-powered AI chips and related equipment to China. The world's No. 2 economy by GDP generates billions of dollars in quarterly sales for Nvidia, which could notably shrink if tariff-related uncertainty persists and trade relations between the U.S. and China sour.
But I believe this is just the tip of the iceberg, and other Wall Street analysts will follow in Goldberg's footsteps once Nvidia's lifts the proverbial hood after the closing bell on May 28.
Image source: Getty Images.
More sell ratings are likely for Wall Street's AI darling
Similar to Goldberg, I'm happy to give Nvidia credit where credit is due. The company's Hopper and Blackwell chips will likely maintain their compute advantages and remain sought-after hardware for AI data centers. But Nvidia's nearly $2.9 trillion valuation suggests it has big shoes to fill -- and there are more headwinds upcoming than Seaport's senior analyst has listed.
Arguably the top challenge for Nvidia is the internal competition it's contending with. While most investors and analysts focus on direct competitors like Advanced Micro Devices and Huawei, they're completely missing that many of Nvidia's top customers by net sales are internally developing AI chips and solutions to use in their data centers.
Despite most of these companies noting that this internally developed hardware will work side-by-side with Nvidia's GPUs, it doesn't change the fact that this will lead to cheaper and more readily available AI solutions that aren't backlogged. It's a plain-as-day recipe for Nvidia to miss out on future data center market share.
Equally important, Nvidia is losing its biggest competitive advantage; and no, I'm not talking about the compute speed of Hopper or Blackwell. Rather, I'm alluding to the benefits it's reaped from AI-GPU scarcity.
Though Nvidia can't meet the overwhelming demand for its Blackwell GPU architecture, it's not stopping AMD from bringing less-costly next-generation chips to market. It's also not slowing the aforementioned internal innovation of Nvidia's top clients. As this hardware enters high-compute data centers, it reduces the AI-GPU scarcity and immense pricing power that fueled Nvidia's gross margin.
One year ago, in fiscal 2025, Nvidia reported a scorching-hot generally accepted accounting principles (GAAP) gross margin of 78.4%. Since then, its GAAP gross margin has declined every quarter, and is expected to have fallen to an estimated 70.6% (+/- 50 basis points) for the fiscal first quarter, which it'll report on May 28. We're witnessing Nvidia's leading advantage wane before our eyes.
Lastly, history would strongly suggest that artificial intelligence won't escape a bubble-bursting event. Every next-big-thing technology or innovation for more than 30 years has endured a bubble early in its expansion phase. With an overwhelming majority of businesses not optimizing their AI solutions, or even generating a positive return on their AI investments, it once again appears that investors have overestimated the early innings utility of a game-changing technology.
When more Wall Street analysts begin paying attention to these factors, I predict the number of sell ratings for Nvidia stock will climb.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
