Nvidia's rally will run out of steam next year as the chip giant's customers become competitors, analyst says

• Nvidia's monster rally won't last as the chipmaker faces long-term challenges, according to Gil Luria.
• The DA Davidson analyst has predicted as much as a 20% decline in Nvidia stock by the end of the year.
• Nvidia's largest customers could turn into competition as they develop their own AI chips, Luria warned.

Nvidia stock can't keep soaring forever, and the chip behemoth will eventually suffer as demand for its GPUs softens, according to DA Davidson analyst Gil Luria.

Luria told BNN Bloomberg on Tuesday that Nvidia probably won't see a meaningful decline over the short term. Profits over the last quarter will likely be "fantastic," he said, predicting the company would report over $25 billion in revenue.

However, the chipmaker's decline over the long run is inevitable, as the company will battle more competition over the coming years, even from its own customers, he warned.

"The reason we're not quite as bullish as everybody else is we're looking at the horizon. What's going to happen next year? What's going to happen in 2026? We think there's accumulating more and more evidence this can't continue," Luria said. "Whenever one company extracts this much profit out of the market, competition does come in, and in Nvidia's case, it's coming in from its customers.

Most of Nvidia's business comes from its five largest customers, Luria said, which include Amazon, Meta, Microsoft, Alphabet, and Tesla. Those firms are also big competitors in the AI race, and companies like Apple and Microsoft are reportedly developing their own AI chips.

And while some of Nvidia's customers are stockpiling its GPUs, demand is bound to run out eventually, Luria previously told Bloomberg, as firms can only accumulate so many chips.

"Since our expectations are considerably lower than consensus expectations for those out years, our perspective is that there will be a day where revenue starts declining, and if nobody is expecting that, the stock would have a significant downside if that were to happen," Luria warned.

Nvidia has enjoyed a meteoric rally over the last 18 months, with the stock nearly doubling over the past five months alone as the AI hype continues to grip Wall Street. That's led some analysts to grow concerned over the company's lofty valuation, which is now higher than other tech titans like Alphabet and Amazon.

Luria has among few forecasters who are bearish on Nvidia stock. Previously, he called for as much as a 20% drop in the company stock by the end of the year, as the company was unlikely to keep up its rapid pace of growth.