Why Is NVIDIA Stock Going Down? Key Factors Explained

NVIDIA (NASDAQ: NVDA), a leader in AI and semiconductor technology, has seen its stock decline by approximately 13–23% year-to-date in 2025, despite its dominance in AI infrastructure. Below, we break down the verified reasons behind this trend, addressing common questions like “Should I buy or sell NVIDIA stock?” with factual clarity.

Market Corrections and Macroeconomic Pressures

• Broad Market Cooling: After two years of historic gains, the S&P 500 is down 1.5% in 2025, with big-cap tech stocks like NVIDIA facing headwinds. Analysts note that a third consecutive year of growth would be unprecedented, leading to profit-taking and sector rotation.
• Tariff and Trade Risks: The U.S.-China trade war and new Trump-era tariffs have raised concerns about supply chain disruptions and export restrictions, particularly impacting NVIDIA’s sales in China, Singapore, and Vietnam.
• Valuation Reset: After a 400% surge over three years, NVIDIA’s stock became overvalued relative to earnings. Even with a 2025 price-to-earnings (P/E) ratio of ~25.5 (near Nasdaq-100 levels), investors remain cautious about sustaining such growth.

AI Industry Shifts and Competition

• DeepSeek’s Disruption: A Chinese AI lab, DeepSeek, demonstrated cost-effective AI model training using older GPUs, challenging NVIDIA’s high-end hardware dominance. This sparked fears of reduced demand for NVIDIA’s latest Blackwell chips.
• Client Diversification: Major customers like Microsoft and OpenAI are exploring custom AI chips to reduce reliance on NVIDIA. Microsoft scaled back data center leases, while OpenAI partnered with TSMC to develop specialized chips.
• Margin Pressures: NVIDIA’s Q4 2025 gross margins fell to 73% (from 76% in Q4 2024) due to Blackwell production costs. Management expects further margin compression in Q1 2026.

Geopolitical and Supply Chain Risks

• Export Restrictions: U.S. export controls on advanced chips to China and other regions threaten NVIDIA’s revenue, as China previously accounted for ~20% of its data center sales.
• Supply Chain Strain: While NVIDIA navigated past shortages, scaling Blackwell production amid global semiconductor bottlenecks remains a challenge.

Mixed Financial Performance

Despite record revenue ($130.5 billion in FY2025, up 114% YoY), investors reacted negatively to:

• Slowing Growth: Q4 2025 revenue growth slowed to 78% YoY (vs. 262% in Q1 2025).
• Earnings Miss: Recent quarterly results narrowly beat estimates, failing to meet heightened expectations.

Investor Sentiment and Analyst Views

• Hedge Fund Activity: Hedge fund holdings dropped slightly, reflecting caution.
• Analyst Ratings: While 36 of 43 analysts maintain “Strong Buy” ratings, price targets imply 25–46% upside. However, bearish forecasts suggest further declines to ~$87 by mid-2025.

Should You Buy or Sell NVIDIA Stock?

Reasons to Consider Buying:

1. AI Leadership: NVIDIA’s Blackwell platform dominates AI infrastructure, with demand termed “insane” by CEO Jensen Huang.
2. Valuation Discount: Trading at a forward P/E of 29.2 (vs. 10-year average of 59.2), the stock appears undervalued if growth resumes.
3. Diversification: Expansion into autonomous vehicles (Toyota, BYD partnerships) and edge computing offers new revenue streams.

Reasons to Consider Selling:

1. Short-Term Volatility: Macro risks and margin pressures could drive further declines.
2. Competition Threat: Custom chips and efficient AI training methods may erode NVIDIA’s market share.
3. Overexposure: NVIDIA’s stock remains highly correlated with AI hype cycles, increasing downside risk if sentiment sours.

Key Takeaways

• NVIDIA’s decline reflects a mix of macroeconomic shifts, competitive threats, and valuation resets—not fundamental weakness.
• Long-term investors may see the dip as a buying opportunity, given NVIDIA’s AI leadership. However, short-term risks warrant caution.
• For those holding NVIDIA, diversification and monitoring tariff/export developments are critical.

For deeper analysis, refer to sources: Yahoo Finance, Nasdaq, and NVIDIA’s investor relations.