Nvidia (NASDAQ:NVDA) is the most valuable stock on the market. With a capitalization of $3.6 trillion, it surpassed Apple (NASDAQ:AAPL) to take the top spot. 

As demand for artificial intelligence chips and servers soared, Nvidia led the way forward and its stock took off. Over the past five years NVDA stock rocketed more than 2,250% higher, but since the beginning of 2023 following the release of ChatGPT and the advent of generative AI chatbots, the semiconductor stock has gained nearly 1,000%.

Although its shares are up 10% year-to-date and Nvidia is likely to be a primary beneficiary from the $500 billion AI infrastructure investment President Trump revealed the other day, here’s why Nvidia is likely due for a major price reset in 2025.

A concentration of wealth

There are factors specific to Nvidia and to general macroeconomic issues that suggest the chipmaker is due for a correction of 33% or more.

For one, the market is overheated. The back-to-back gains of 20% or more by the S&P 500 are due to just a handful of stocks carrying the market higher, rather than a broad-based rally.

Because the benchmark index is a market cap weighted index, it means the bigger the stock, the more it influences the popular index’s performance. Nvidia is single-handedly responsible for large swaths of the S&P 500’s gains over the past two years.

In 2023, the Magnificent 7 stocks dominated the news cycle. So where the index gained 26.2% that year, Nvidia, Meta Platforms (NASDAQ:META), Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), and Apple were responsible for 62% of the total performance.

They had grown so large that just those seven stocks made up about 28% of the S&P 500’s total market capitalization and Nvidia alone was responsible for 13% of the index’s gains. It had an even greater influence last year.

Where the market returned 23.3% in 2024, NVDA stock’s 171% gain was responsible for a whopping 22% of the total. So despite appearing like we’re in the midst of a massive bull market, it is because of a literal handful of stocks the S&P 500 is sitting at all time highs. And historically, the index tends to fall far more often after back-to-back 20% years than it rises.

Homegrown issues

You can’t ignore Nvidia’s own role in any coming market crash. It also has a history of suffering dramatic reversals of fortune, most recently in 2022 when NVDA stock was cut in half. Before that, it lost nearly a third of its value in 2018, but it all occurred in the fourth quarter of that year when the stock plunged 53%. So another halving event is quite possible.

Part of the reason is the semiconductor industry is cyclical. It regularly goes through boom and bust periods, vacillating between outsized demand and dramatic oversupply. Clearly we’re in the former as it relates to demand for AI chips and Nvidia is far and away the leader in the space. Yet that could quickly reverse course this year.

While Nvidia’s supply of its most advanced AI Blackwell chips are sold out through the end of the year, the chipmaker is having recurring problems with them overheating. A recent report by The Information indicated that companies like Microsoft, Amazon, and Alphabet that had placed over $10 billion in orders each for the AI accelerators have begun cutting their purchases. 

While some are opting to wait for the issues to be ironed out, or are taking Nvidia’s older Hopper chips in their place, it creates an opening for rivals like Advanced Micro Devices (NASDAQ:AMD), which makes powerful, but cheaper AI accelerators, to gain customers. 

With the very rich valuation of NVDA stock, if there is an appreciable slowdown in sales growth, it could trigger a severely pricing revaluation.

Key takeaway

There’s no question that Nvidia’s long-term runway of growth is secure. It will eventually iron out the issues with its current generation of AI chips and it is already working on the next generation, called Rubin.

AI itself is still in its infancy and will power Nvidia forward, but the field is so wide open that there will be multiple winners in the space. It just might prove for investors to be too competitive to justify NVDA’s premium, which could lead the stock to fall anywhere from 33% to 50% or more in 2025.

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