Nvidia (NASDAQ:NVDA) stock has been on an absolute tear lately, driven by tremendous momentum fueled by the AI hype cycle. However, after this parabolic surge, NVDA stock is starting to plateau, at what I believe is a very high valuation. In my opinion, NVDA stock is unlikely to continue marching higher from here.

Now, there’s no denying that AI mania has caused incredible hype around NVDA stock in recent years. But what’s truly kept the stock aloft at nosebleed levels is the company’s extremely bullish long-term guidance, which Wall Street has seemingly taken at face value. However, I believe this happy-go-lucky trajectory is unlikely to remain so cheerful for much longer.

Declining Hype and Competition in AI Can Be Dangerous for NVDA Stock

The hype around artificial intelligence has already started to taper off a bit. Additionally, Nvidia’s sunny projections basically imply that AI startups will have no problem continuing to access ample funding so they can keep buying the company’s pricey AI chips. Sure, these companies are happily paying tens of thousands of dollars per chip right now, but one must also consider that Nvidia faces rapidly rising competition in the AI chip space.

Additionally, as supply eventually catches up with demand, Nvidia will simply not be able to continue enjoying 60-90% margins on its chips. Investors must also consider the glaring fact that many of these AI startups are highly-speculative companies without a clear pathway to profitability for years, if ever.

Such companies will need to raise billions more in funding consistently just to survive, and I believe that as access to funding dries up in the years ahead, they will likely start opting for cheaper chips from competitors, as well as older generations of Nvidia chips.

Competitive Pressures Are Real

In other words, believing Nvidia will maintain total dominance over the AI chip space indefinitely is not prudent, in my opinion. Aggressive competitors like AMD (NASDAQ:AMD) are already nipping at Nvidia’s heels, and I believe they could reach parity with NVDA in AI-focused chips before the end of the decade.

This shift could happen even sooner, with AMD’s share of AI chip sales potentially reaching around half of Nvidia’s by 2024. I haven’t even mentioned other big competitors like Intel (NASDAQ:INTC) yet, not to mention all the rumors swirling about Microsoft (NASDAQ:MSFT) partnering with the likes of AMD.

Plus, while NVDA stock may have another, say, 40% upside left according to the Wall Street consensus (which would be impressive), I believe the downside risks in this case are too worrisome to ignore. I feel companies like TSMC (NYSE:TSM) and ASML (NASDAQ:ASML) offer much better value now as the foremost suppliers of key semiconductor manufacturing tools and technologies. Of course, that’s just my perspective.

AI Itself Is a Very Speculative and Unreliable

Naturally, much uncertainty persists around how rapidly AI technology will advance in the years ahead, and how much it can truly transform industries. But even if we assume one of the more optimistic outlooks for AI comes to fruition, I believe the intense competition and margin compression Nvidia faces will hinder its upside from today’s already steep valuation.

Of course, I could be completely wrong in my skepticism. Nvidia has made fools out of naysayers before. The company is a proven innovator with top engineering talent, and it deserves credit for skillfully capitalizing on emerging opportunities like AI.

However, markets tend to get carried away with story stocks like this, imbuing them with unrealistic growth expectations and lofty valuations until reality strikes. I fear Nvidia may be approaching that inflection point. Its days of exponential growth seem likely to moderate going forward.

The Bottom Line

The bottom line is that the future growth trajectory and competitive landscape of the AI sector remain highly uncertain. Even if we take some of the most optimistic projections for AI, I believe competition and the normalization of profit margins will significantly hinder Nvidia over the long haul. Don’t get me wrong, Nvidia remains a great company and will still prosper in the years ahead, in my view. But will it really deliver the ~51% CAGR revenue growth for its data center segment that Wall Street apparently expects? I have sincere doubts about that, given the maturation of markets and the challenges posed by hungry competitors.

In any case, I could certainly see NVDA stock treading water for an extended period, as the company’s financial results catch up to embedded growth assumptions. Consider yourself warned that future gains may prove elusive from today’s altitude.

With all that said, I would not outright short NVDA stock here, given the broader market still seems relatively constructive, and Wall Street remains staunchly bullish on the shares. Shorting can be hazardous if the momentum in a stock like this keeps running hot, so my rating here would be a cautious “hold” for now until more clarity emerges on the competitive landscape.

But in my opinion, the red trading days for NVDA seem more likely to outnumber big green days in the future. While Nvidia will remain a force in semiconductors for years to come, enormous risks come with owning a stock priced for perfection. In other words, caveat emptor.

On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.