Why I'm Not Buying Nvidia Stock
Why I'm Not Buying Nvidia Stock
Daniel Sparks, The Motley FoolWed, February 25, 2026 at 6:25 AM UTC
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Key Points -
Nvidia's revenue growth accelerated in fiscal Q3, and management guided for an exceptionally strong fiscal Q4.
The AI chip company's data center revenue soared in fiscal Q3.
Too much optimism may be priced into the stock.
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Shares of Nvidia (NASDAQ: NVDA) head into one of the market's biggest events of the quarter when the AI chip leader reports fourth-quarter and full-year fiscal 2026 results after market close on Wednesday, Feb. 25. Given the company's incredible $4.7 trillion market capitalization as of this writing, you can bet that many investors will be watching -- and the news from the company may be enough to move both its own stock and the broader indexes.
Nvidia's underlying business performance recently has been nothing short of astounding, with the most recent quarter showing revenue growth accelerating again -- on top of already extremely high growth rates. The harder part, however, is the stock. At today's price, the market expects near perfection from the AI (artificial intelligence) chipmaker.
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Here's a closer look at why I'm staying on the sidelines going into Nvidia's earnings update this week.
An Nvidia logo outside of Nvidia's headquarters.
Image source: Nvidia.
Business momentum is still exceptional
Nvidia's fiscal third-quarter update (ended Oct. 26, 2025) showed why investors remain upbeat about AI infrastructure spending. Revenue in the period rose 62% year over year to $57.0 billion -- an acceleration from 56% growth in fiscal Q2.
That strength is still centered in the data center segment. Nvidia's data center revenue rose 66% year over year to $51.2 billion in fiscal Q3 -- up from $41.1 billion in fiscal Q2.
Profitability has held up well, too, even as the business scales rapidly. Nvidia's GAAP gross margin was 73.4% in fiscal Q3, up sequentially but down from 74.6% a year earlier.
Orders for Nvidia's products have been surreal.
"Demand for AI infrastructure continues to exceed our expectations," said Nvidia chief financial officer Colette Kress in the company's fiscal third-quarter earnings call. "The clouds are sold out, and our GPU installed base, both new and previous generations, including Blackwell, Hopper, and Ampere, is fully utilized." Looking ahead, Nvidia guided for fiscal Q4 revenue of about $65.0 billion, plus or minus 2%. Against revenue of $39.3 billion in fiscal Q4 of last year, the midpoint implies about 65.4% year-over-year growth.
I need a great entry point, not a good one
The problem for me is that the stock price already prices in a long runway of elevated growth rates. Highlighting its premium valuation, Nvidia currently trades at roughly 48 times earnings.
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While Nvidia's current growth profile does a good job of justifying a valuation multiple like this, there's valuation risk if growth rates decline or if Nvidia's pricing power erodes over time. And given the fast-changing, cyclical nature of the semiconductor industry, I prefer to wait for a significant margin of safety before buying a stock. Specifically, for a tech stock like Nvidia, I want to be able to forecast a scenario in which the stock could earn a 15% annual return over the long haul from its current price before buying. At Nvidia's current valuation, I just can't make that math work.
In short, I don't believe there is enough margin of safety for me to personally buy the stock today. From its current valuation, Nvidia can keep growing and still deliver only ordinary returns if the valuation multiple compresses as growth normalizes.
But for investors who believe we are in the early innings of the AI boom and that Nvidia's competitive advantages can endure for the long haul, it may make sense to start a small position in the stock. Sizing, however, is key. Given Nvidia stock's valuation risk, it could be a bumpy ride.
I can like the business and still pass on the stock. And that's exactly what I'm doing -- at least for now. Unless the post-earnings move falls significantly, I'll likely continue staying on the sidelines, deploying my capital elsewhere.
To be clear: This isn't a prediction that the stock will move lower following Nvidia's earnings report. I have no idea what the stock will do. Regardless of what it does, I feel like I need a better price relative to the fundamentals, so there's no reason for me to buy now and hope the stock goes up when the company reports earnings.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Source: “AOL Money”
