Analysts are expressing concern that Nvidia Corporation (NASDAQ:NVDA) stock is overheating. The future growth potential within the artificial intelligence (AI) industry is unpredictable at this early stage. Estimating the future growth rate is challenging, as there are still many industries where the use cases for AI have not been discovered. However, it is highly likely that Nvidia's market share in the AI industry will decline in the coming years as competitors like Advanced Micro Devices, Inc. (AMD), Alphabet (GOOG), and others increase their AI chip production. According to Reuters, Nvidia currently holds a market share in AI computing as high as 95%. Nvidia's full stack option, which includes the CUDA software layer for better performance, may limit flexibility for larger clients like Amazon's AWS. AWS rejected Nvidia's DGX Cloud option, stating that it didn't align with their requirements for flexibility, according to Dave Brown, Vice President of Elastic Compute Cloud at Amazon. Major cloud players prefer having multiple AI chip options rather than relying solely on one vendor. This decline in market share and increased competition will likely reduce Nvidia's pricing leverage and affect the company's EPS growth trajectory. Long-term investors should consider Nvidia's future market share potential in the AI industry and evaluate the current valuation multiple of the stock to determine its return potential. While the popularity of ChatGPT, powered by Nvidia's chips, has drawn attention to the company, the monetization of many AI applications is still far off. To demonstrate the application of its AI chips in various industries, Nvidia has invested $50 million in Recursion Pharmaceuticals, Inc. (RXRX) to expedite the training of AI-based drug discovery models. A recent Gartner poll of 2, 500 executives shows widespread interest in AI tools for boosting productivity and revenue growth in businesses. However, the exact scope of AI in different industries will take a few more quarters to unfold. It is highly likely that Nvidia's market share in the AI chip industry will decline to less than 50% by 2030, as other competitors such as AMD make strides in closing the gap. While a decrease in market share would still allow Nvidia to achieve good revenue growth in a rapidly expanding AI industry, higher competition may negatively impact margins. It would be unrealistic for Nvidia to maintain its current high pricing for AI chips. Therefore, cost rationalization within the industry is expected in the near term. Regulatory bodies are closely monitoring the growth of the AI industry and its impact on productivity, employment, and various sectors. The European Commission has proposed new copyright rules for generative AI tools like ChatGPT. Increased regulations on AI tools are anticipated as their adoption expands across different industries.

There is also concern that AI may replace a significant portion of the workforce, resulting in unemployment and reduced tax revenue for governments. Political leaders discuss AI extensively in G7 and G20 formats, indicating the likelihood of a strong regulatory framework controlling the growth of AI tools. Nvidia's strong bet on AI could face headwinds if regulatory challenges arise. Nvidia's current market cap is in proximity to Alphabet's, but its revenue base is only 12% of Alphabet's. While Nvidia has achieved a 20% compound annual growth rate in revenue over the past decade, reaching close to $200 billion by 2030, it would still be lower than Alphabet's current revenue base. Furthermore, Alphabet has a higher operating margin than Nvidia. In addition to competing against chipmakers like AMD, Nvidia will also face competition from big tech companies like Alphabet, Meta, and Amazon, which are likely to develop their own custom-built AI chips. Alphabet has already announced that its chips can outperform Nvidia's products. If Wall Street assigns higher valuation multiples to AI chipmakers, many big tech players are expected to enter the industry. Even in an optimistic scenario of significant AI industry growth and Nvidia retaining decent market share, it would be challenging for the company to reach a $2 trillion market cap or $800 per share. Recent price revisions for Nvidia stock by analysts have been upward, with Citi raising the price target to $600. However, despite good revenue growth in the short term, the stock's current price reflects perfection and faces challenges on multiple fronts. Any misstep by management could lead to a correction, and increased competition may result in declining market share and lower margins. While Nvidia's stock has gained over 225% year-to-date, making it the standout performer in the AI boom of 2023, its price-to-sales ratio is eight times that of Alphabet. It is doubtful that Wall Street can sustain the current bullish momentum at the current price, even if Nvidia delivers strong numbers in the coming quarters. It is highly likely that Nvidia's market share in the AI chip industry will decline as competitors like AMD and other big tech players increase their production. This will reduce Nvidia's pricing leverage and lower long-term revenue projections. The author of this article has experience in the technology sector and a background in finance, enabling them to provide valuable insights into the industry. The author has disclosed that they have no stock or derivative positions in any of the mentioned companies and have no plans to initiate such positions in the next 72 hours. The article reflects the author's own opinions and they are not receiving compensation for it. Seeking Alpha, where the article is published, also includes its own disclosure, stating that it does not provide investment advice and that the views expressed within the article may not represent those of Seeking Alpha as a whole. The analysts at Seeking Alpha are independent authors who may or may not be licensed or certified by any regulatory body or investment institute.