Nvidia's AI Bet: A Bargain Amidst Soaring Industry Spending?

After years of stratospheric gains, Nvidia (NASDAQ: NVDA) has opened 2026 in unfamiliar territory: lagging the broader market. While the S&P 500 has climbed, the AI chip titan's stock has remained flat through late January, a pause that has some investors questioning if its $4.5 trillion valuation has finally stretched too far.

Yet, the fundamental engine powering Nvidia—the global race to adopt artificial intelligence—shows no signs of slowing. According to a new report from research firm Gartner, worldwide AI spending is projected to leap 44% this year to over $2.5 trillion. More strikingly, it's forecast to grow another 32% in 2027, surpassing $3.3 trillion. This robust growth projection comes even as the industry enters what analysts term a "trough of disillusionment," where early hype meets the hard reality of implementation and ROI.

"The skepticism is healthy and expected at this phase," says Michael Chen, a technology portfolio manager at Horizon Capital. "What's telling is that spending continues to accelerate despite the doubts. It signals we're moving from experimental budgets to core infrastructure investment. For Nvidia, as the dominant provider of the picks and shovels, that's a powerful, long-term tailwind."

Nvidia's own financials, while off their peak growth rates, remain formidable. For its last reported quarter ending October 26, 2025, revenue grew 62% year-over-year to $57 billion, with net income soaring 65% to $31.9 billion. At a forward price-to-earnings multiple hovering around 25, many argue the stock prices in a significant slowdown that the Gartner data contradicts.

"A sub-25 P/E for the company that is literally building the plumbing for the AI era is borderline absurd," argues Sarah Finch, a vocal tech analyst and frequent market commentator. "This is a classic case of short-term myopia. The market is punishing Nvidia for not doubling sales from an already colossal base, while ignoring that a $3 trillion-plus addressable market is materializing right before us. This isn't a stock that's expensive; it's one the market has temporarily mispriced."

However, not all observers share this bullish outlook. "Let's not get carried away," cautions David Park, a senior fellow at the Institute for Economic Stability. "Valuations are still rich by historical standards, and the AI spending boom is creating a bubble in certain segments. Nvidia is an incredible company, but it's now a macro bet. Any stumble in global AI capex, or a breakthrough in alternative chips, could derail the story. Calling it a 'bargain' ignores the profound concentration and regulatory risks it now carries."

For retail investor Jessica Reynolds, the debate is personal. "I bought a few shares years ago and watched it skyrocket. I've been kicking myself for not buying more," she says. "This recent stall and the huge spending forecasts make me think this might be a second chance to get in before the next leg up. It feels less like gambling on hype now and more like investing in a utility—AI's utility."

Disclosure: The Motley Fool has positions in and recommends Nvidia and recommends Gartner.