Why has Nvidia underperformed the broader market recently, and what is the market concerned about?

Nvidia's recent stock performance has diverged unusually from its fundamentals: on one hand, the market has extremely high short-term earnings expectations; on the other hand, the stock price has consistently underperformed the broader market. This weakness is not due to any major earnings disappointment, but rather, investors are facing a “wall of worry.” The market is no longer simply buying into the story of supply shortage; instead, it is tangled with clients’ financing capabilities, the rise of competitors, and the sustainability of AI investment returns.

According to Wind Chaser Trading Desk, Morgan Stanley analyst Joseph Moore pointed out in the latest research report that while such concerns are weighing on the stock price, they are actually exaggerated. The firm believes Nvidia's upcoming next-generation chip “Vera Rubin” will be the key catalyst to break the impasse—alleviating concerns over market share losses and solidifying the company’s dominance in the next phase of computing architecture. Morgan Stanley maintains its “Overweight” rating on Nvidia and has set a target price of $250.

The current market sentiment is very different from past AI-cycle pullbacks over the last three years. Previously (such as in 2024 or late 2025), sell-offs were usually accompanied by concrete negatives—like tech direction debates sparked by DeepSeek, or supply-chain inventory accumulation rumors. But now, despite extremely strong demand feedback from the supply chain—investors are even discussing EPS reaching above $9 this year, far surpassing the consensus of $7.75—the stock price is lukewarm.

The core of this disconnect is that investors have shifted focus from “who can produce chips” to “who can afford to buy these expensive chips.” As the AI beneficiary list expands, other parts of the semiconductor ecosystem (like memory and equipment) are diverting capital, while the market harbors deep doubts about the sustainability of capital expenditure among advanced model developers.

Worries About Clients’ Deep Pockets and Nvidia’s Role

Concerns over Nvidia’s key clients’ financing abilities are becoming concrete. Recently, stocks deeply connected to OpenAI (like Microsoft and Oracle) have significantly underperformed, fueled by market skepticism about OpenAI’s cash burn rate and its ability to support infrastructure build-out.

Take Oracle as an example—huge incremental interest expenses and lease liabilities are required to sustain substantial IT capital expenditures (with most related to OpenAI), and some analysts have sharply downgraded their EPS forecasts. If investors doubt Oracle’s ability to fulfill its backlogged orders, or suspect OpenAI can’t pay up, this sentiment will inevitably impact Nvidia’s valuation.

Even more sensitive is the role Nvidia plays in the equation. Nvidia is actively “feeding back” to its clients and partners through equity investments—including OpenAI, CoreWeave, and even Intel. This practice has sparked concerns about “circular financing” in the market.

On this, Jensen Huang was notably frank at CES, admitting that if he could turn back time, he would have made different early-stage investment choices with Anthropic—they missed out on opportunities due to insufficient funds, causing Anthropic to initially favor Amazon and Google’s ASIC solutions.

Clearly, Nvidia does not want to repeat these mistakes. Morgan Stanley’s checks indicate that Nvidia’s current investments are mostly equity-based, not debt-based.

For example, this week’s investment in CoreWeave was purely an equity injection, without credit arrangements. While the company may retain some credit risk exposure in the future through leasing, this is more about maintaining ecosystem dominance than playing “financial games” to force revenue growth.

It’s Not Just Computing Power—It’s a Blowout in Manufacturing Efficiency

In terms of competition, the market generally worries about ASICs (custom chips) and AMD eating into Nvidia’s share. Indeed, with the entire industry growing at over 75%, every competitor feels they’re “winning.” Total cost of ownership (TCO) studies often show alternatives are cheaper, but these “on-paper” metrics often distort in real, large-scale deployments.

Morgan Stanley expects Nvidia to hold about 85% revenue share this year, with quarterly revenue growth exceeding the total revenue of the second-largest competitor. The real trump card is the next-gen “Vera Rubin” architecture. Supply chain checks show the transition from Blackwell to Rubin could be faster than anticipated.

An overlooked detail is the leap in manufacturing efficiency: CES data indicated that the board-level assembly time for Vera Rubin systems is just about 5 minutes, while Blackwell systems require roughly 2 hours.

This huge manufacturing advantage, combined with rack-level interconnect speed and silicon-level optimization, will allow Rubin to ramp up mass production in 2026 much more smoothly than competitors. For developers needing large-scale clusters urgently, this is not merely a performance issue but a matter of delivery certainty.

A Crowded Track and Valuation Returning to Norms

By 2026, the AI semiconductor ecosystem will definitely look different. With capacity bottlenecks resolved, AI dividends are spilling over, and links like memory and wafer foundry—thanks to higher operating leverage—are attracting capital seeking high elasticity. Morgan Stanley previously shifted its top pick from Nvidia to companies like Micron, based on this logic.

However, this does not mean Nvidia has lost its appeal. Nvidia’s current P/E is already below most growth or cyclical stocks in Morgan Stanley’s coverage universe.

The market has become indifferent to near-term strong earnings forecasts. Only when more details of Vera Rubin are unveiled at the GTC conference in mid-March, and as the product pipeline becomes more transparent—especially as capital market mechanisms surrounding AI spending grow more robust—will the valuation shackles suppressing the stock price be broken. Before then, those seemingly aggressive client spending plans are actually the bedrock for Nvidia’s bull market.

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