Dutch semiconductor equipment manufacturer ASML (ASML -8.55%) warned investors Wednesday its sales might not grow at all in 2026, sparking worries the artificial intelligence (AI) revolution might not be as inevitable as investors thought — and sparking a brief sell-off in shares of contract chip manufacturer Taiwan Semiconductor Manufacturing (TSM 0.23%).

Shares of TSMC tumbled more than 4% in early trading before making up most of their losses by noon ET. As of 12:10 p.m. ET, TSMC stock is down only 0.2%.

Semiconductor logic

Why is it down at all? The reasoning goes like this: The AI revolution is supposed to be great news for semiconductor stocks — for both sellers of chips like TSMC, and sellers of the machines that make the chips, like ASML. But if ASML’s sales are slowing (and they are — Q2 sales were up only 0.6% year over year), then that logically might mean that TSMC’s own sales growth could stall as well.

That’s the worry that fretted investors this morning.

Is TSMC stock a sell?

And yet, that’s not what most analysts think will happen — at all. According to analysts polled by S&P Global Market Intelligence, total sales growth for TSMC over the next five years should average nearly 20% annually. And between the stock’s 22.4-times earnings valuation and its 1.8% dividend yield, that means TSMC is almost perfectly priced for the long-term growth that almost everyone is certain will happen.

Granted, short term hiccups could arise. In ASML’s case, growth is probably slowing, at least in part because of sanctions placed on exports of chip-making machinery to China. But there are plenty of other countries in the world that need chips, and both ASML and TSMC can still sell to them.

Long term, I expect TSMC stock is going to do just fine.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

More than 30 years ago, the advent and proliferation of the internet kicked off the greatest leap forward in technological innovation for businesses in a long time. Though a number of next-big-thing innovations have come along since the internet revolutionized how businesses interact with consumers and sell their products and services, none have come close to matching its long-term addressable potential… until now.

The rise of artificial intelligence (AI) represents the next great tech advancement that has the ability to alter the long-term growth trajectory for corporate America. Empowering software and systems with AI solutions to make decisions without human intervention gives this technology a jaw-dropping addressable market, which the analysts at PwC have pegged at $15.7 trillion (globally) by 2030.

Although a long list of companies has benefited from Wall Street’s hottest trend, it’s semiconductor titan Nvidia (NVDA 0.86%) that’s become the face of the AI revolution. As is often the case with businesses on the leading edge of a game-changing innovation, predictions are all over the map.

Whereas one Wall Street analyst foresees the most pivotal of all tech stocks soaring to $220 per share, another believes it’ll plummet to just $100 per share. Yet what’s most interesting is that Wall Street’s high- and low-water price targets both completely overlook what can arguably be described as the biggest catalyst for Nvidia.

Is Nvidia a $5 trillion dollar business?

Make no mistake about it, the overwhelming majority of Wall Street analysts and investors believe Nvidia stock is headed higher. But none of these price projections speaks louder than analyst Ivan Feinseth at Tigress Financial, who foresees Nvidia shares adding 55% and heading to $220. If Feinseth is accurate, Nvidia’s market cap would near $5.4 trillion. For context, Nvidia had a market valuation of $360 billion when 2023 began.

Feinseth’s Street-high price target is predicated on sustained strong demand for Nvidia’s graphics processing units (GPUs). The Hopper (H100) and successor Blackwell GPUs account for the lion’s share of the GPUs currently deployed in AI-accelerated data centers, and demand for this hardware hasn’t shown any signs of slowing.

As a general rule, when the demand for a good or service outstrips its supply, the price of said good or service is going to climb until demand tapers off. In Nvidia’s case, its GPU orders are backlogged, which has allowed the company to charge a healthy premium for its hardware, relative to its direct external competitors. The end result has been a significant uptick in the company’s gross margin, compared to prior to the AI revolution taking shape.

Feinseth’s $220 price target, which was issued in late January, came after a short-lived plunge in Nvidia stock caused by the debut of China-based DeepSeek’s R1 large language model (LLM) chatbot. DeepSeek is alleged to have used slower and less-costly hardware from Nvidia to develop its LLM. Feinseth’s lofty price target demonstrates confidence that Nvidia will be able to maintain its superior pricing power.

Will Nvidia shares plunge 30%?

On the other end of the spectrum is Seaport Global Investors analyst Jay Goldberg. In late April, Goldberg became the only analyst covering Nvidia to rate its stock as a “sell,” and initiated a $100 price target. Based on where Nvidia shares ended the session on June 6, Goldberg’s price target intimates a decline of almost 30%.

Goldberg doesn’t foresee Wall Street’s AI darling losing its leading position as the preferred company powering AI-accelerated data centers. But he does believe that AI optimism is fully priced into Nvidia stock given a few variables.

To begin with, Goldberg notes that many of Nvidia’s top customers by net sales are internally developing AI-GPUs and solutions of their own. Even though these chips won’t represent external competition for Hopper, Blackwell, or any successor GPUs, they’re going to be notably cheaper and more readily accessible than Nvidia’s premium-priced and backlogged hardware. This is potentially problematic to Nvidia landing new orders from its current top customers.

Goldberg also believes that enterprise customers will branch out and purchase from other hardware providers. For instance, Advanced Micro Devices‘ less-costly Instinct MI300X series GPUs, as well as Broadcom‘s custom AI-accelerating chips, could siphon away some of Nvidia’s monopoly like data center market share over time.

With enterprise spending on AI-data center infrastructure expected to slow in 2026, per Goldberg, Nvidia stock is currently pricey.

Wall Street’s high- and low-water price targets are completely missing this key catalyst

While Feinseth and Goldberg both make compelling cases, their arguments — along with the dozens of other analysts and institutions that have placed a price target on shares of Nvidia stock — completely overlook a historical catalyst associated with next-big-thing trends and innovations.

Though the internet proved to be a game-changing technology, it wasn’t a universal winner from the get-go. It took years for businesses to figure out how to optimize their marketing and sales to consumers and other businesses. In other words, it took time for the internet to mature as a mainstream innovation.

Since the advent of the internet, we’ve witnessed a number of other high-profile trends, technologies, and innovations come along that have also endured an early stage bubble-bursting event. This includes (but isn’t limited to) genome decoding, business-to-business commerce, nanotechnology, 3D printing, cannabis, blockchain technology, and the metaverse.

For more than 30 years, investors have consistently overestimated the timeline to mainstream adoption and/or utility for game-changing innovations. In short, investors aren’t giving these hyped trends the proper time or channels to mature.

Although Nvidia’s sales have skyrocketed from $27 billion to more than $130 billion between fiscal 2023 and fiscal 2025 (its fiscal year ends in late January), most businesses are nowhere close to optimizing their AI solutions as of yet, or even generating a positive return on their AI infrastructure investments. This points to the growing likelihood of an AI bubble forming and, at some point, bursting.

To be objective, this doesn’t mean Nvidia won’t be a long-term winner. The proliferation of the internet eventually sent the stock market soaring. While Feinseth’s price target may not be achievable in the near-term, it’s certainly within the realm of possibilities as businesses learn how to properly utilize AI solutions and generate a profit from their aggressive AI investments.

But this historical correlation between next-big-thing trends and bubble-bursting events also suggests Goldberg is likelier to be right in the coming quarters — albeit not for the reasons put forth in his research note in late April.

To say that investors were on the edge of their seats ahead of Nvidia‘s (NVDA -0.27%) highly anticipated financial report may well be an understatement. As the poster child for the artificial intelligence (AI) revolution, the company has become the benchmark for the tech industry at large and the yardstick by which progress in AI is being measured.

While the chipmaker delivered better-than-anticipated results on both the top and bottom lines, there were a few blemishes in what would have been an otherwise spotless report.

Let’s take a look at what the results reveal, and if they give us any insight into the future of AI.

Paint by numbers

Investors had high hopes ahead of Nvidia’s fiscal 2026 first quarter (ended April 27), and the AI chipmaker delivered. The company generated record revenue of $44.1 billion, up 69% year over year and 12% quarter over quarter. This drove adjusted earnings per share (EPS) of $0.81, which climbed 33%.

For context, analysts’ consensus estimates were calling for revenue of $43.25 billion and EPS of $0.75, so Nvidia sailed past expectations with some wiggle room.

Fueling the bullish results was a record-setting performance from the data center segment, which continues to drive growth. The segment — which includes processors used for data centers, AI, and cloud computing — generated revenue that surged 73% year over year to $39.1 billion, driven by continuing demand for AI.

One item of note was the Trump administration’s tightening export restrictions. Nvidia’s H20 processor was originally designed to meet the already rigid requirements for AI chips destined for China. However, demand evaporated thanks to the new, more stringent licensing requirements, causing Nvidia to take a $4.5 billion charge in Q1 — though that was lower than the $5.5 billion estimate the company provided last month.

The impact of the move trickled its way down the financial statements. For example, if not for the write-off, Nvidia’s adjusted EPS would have clocked in at $0.96, resulting in a hit of about $0.15 per share.

However, as revenue jumped 69%, operating expenses climbed just 44%, sending more to the bottom line and helping blunt the impact of the lost sales to China. Nvidia’s cash stockpile has grown over the past year, with cash and marketable securities of $53.7 billion, an increase of 71%. Free cash flow of $26.1 billion soared 75%.

CEO Jensen Huang provided commentary about the future of the AI revolution, and the rock star chief executive didn’t mince words:

Global demand for Nvidia’s AI infrastructure is incredibly strong. AI inference token generation has surged tenfold in just one year, and as AI agents become mainstream, the demand for AI computing will accelerate. Countries around the world are recognizing AI as essential infrastructure — just like electricity and the internet — and Nvidia stands at the center of this profound transformation.

This pronouncement, combined with the company’s robust business performance, helped drive Nvidia stock higher in after-hours trading, with shares up more than 4% (as of this writing).

The tariffs wild card

Management expects the company’s growth spurt to continue. Nvidia is guiding for record second-quarter revenue of $45 billion, which would represent year-over-year growth of 50%. This was largely in line with Wall Street’s consensus estimates, but the devil is in the details. The number includes a loss of approximately $8 billion in its fiscal Q2 revenue from the H20 chips, thanks to the more stringent export requirements.

Despite the hit to its growth, investors remain bullish on Nvidia stock. Shares are currently selling for roughly 32 times next year’s expected earnings. While that’s a modest premium, it’s still an attractive price to pay for a company expected to grow its profits by 39% this fiscal year and 35% in its fiscal 2026 — even after the hit to China sales.

Nvidia CFO Colette Kress revealed, “Large cloud service providers remained our largest [customers] at just under 50% of data center revenue.” A quick calculation reveals that 44% of Nvidia’s total revenue is currently dependent on the world’s largest cloud infrastructure providers, including Amazon Web Services, Microsoft‘s Azure Cloud, and Alphabet‘s Google Cloud. Honorable mention goes to Meta Platforms, which has also significantly scaled up capital expenditures (capex) to build out its data centers.

As evidenced by Nvidia’s results, the data center build-out continues, and the world’s largest tech companies and cloud providers have telegraphed their intention to continue the heavy spending that has characterized the build-out of AI infrastructure. Nvidia continues to dominate the data center GPU market, with more than 90% of the market.

For long-term investors, this quarter is one data point in a long track record of impressive execution. Nvidia remains at the heart of the AI revolution, which illustrates that the stock likely has much higher to go from here. It continues to be one of my highest-conviction stocks.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.