Eagle Capital questions sustainability of NVIDIA’s AI chip dominance
The investment firm argues that high gross margins and internal silicon programs from major customers pose a long-term threat to the chipmaker’s market share.
Eagle Capital Management has raised concerns about the longevity of NVIDIA Corporation’s dominance in the artificial intelligence chip market, despite the company’s recent financial strength. In its second-quarter 2026 investor letter, the firm identified NVIDIA as a key holding but cautioned that the company’s position faces significant challenges from its largest customers.
The letter notes that major technology firms, including Google, Amazon, Microsoft, Meta, OpenAI, and Anthropic, are developing internal silicon programs. Eagle Capital argues that these in-house initiatives are likely to erode NVIDIA’s market share over time, with Google’s TPUs and Amazon’s Trainium chips identified as the most competitive alternatives.
A central part of Eagle Capital’s argument rests on NVIDIA’s pricing structure. The firm points out that NVIDIA’s gross margins of 75 to 80 per cent imply a markup of four to five times on wafers from Taiwan Semiconductor Manufacturing Company (TSMC). This pricing dynamic makes custom in-house chips a more attractive price-performance option for hyperscalers, who can amortise research and development costs across a larger base of devices.
Furthermore, Eagle Capital suggests that NVIDIA’s investment in the neocloud industry may inadvertently create high-cost operators. By selling chips at premium prices, the firm argues that these neoclouds become less competitive against vertically integrated hyperscalers in the long term. As NVIDIA’s market share begins to fall, margins may also decline due to both direct and indirect competition from its own customers.
Despite these structural risks, NVIDIA remains a highly regarded asset among institutional investors. The company closed at $219.74 per share on 18 August 2026, with a market capitalisation of $5.32 trillion. In the first quarter of fiscal 2027, NVIDIA reported revenues of $82 billion, representing an 85 per cent year-over-year increase.
Eagle Capital maintains that while it remains a believer in AI, it is recycling capital toward opportunities outside the most crowded trades. The firm’s portfolio currently trades at a 20 per cent market discount with faster expected earnings per share growth, reflecting a strategy designed to perform across multiple market outcomes rather than relying on a single forecast.
