Nvidia (NASDAQ: NVDA) has put in a stunning performance over the past few years, but the stock has tumbled 14% over the past couple of months. Last week, the firm also briefly lost its crown as the world’s largest company by market capitalisation, to Apple. That was short-lived, but it does raise the question: might Nvidia’s best days on the stock market be behind it?

Nvidia’s won from AI – but could it stand to lose from it too?

The issue here, as I believe it ultimately does with any share, boils down to two key questions.

First, how compelling do Nvidia’s business prospects look in the short term but also over the longer term?

Secondly, does the Nvidia stock price today capture those prospects accurately – or does it look overvalued, or undervalued?

To take the first of those questions first, the AI boom has seen demand for chips surge.

Given Nvidia’s strong market position in high-end chips, its installed customer base, deep client relationships, and proprietary technology, the AI boom has been incredibly lucrative for Nvidia.

Its net income in the first quarter alone more than doubled, to $58bn. That is a colossal amount – equivalent to $27m an hour, every hour of the quarter!

There could be a reckoning coming

But there is a clear risk here.

The Nvidia stock price has been the most obvious beneficiary of the AI boom. If AI demand starts to slow, Nvidia would likely be one of the shares to suffer badly.

The fall in share price over the past couple of months may reflect investor nervousness not only about inflated valuations in the sector, but also whether AI will be as widely adopted as initially hoped by its proponents. The jury is still out on that one.

To me, Nvidia looks like a great business. It was successful and highly profitable before AI interest exploded.

Indeed, Nvidia has done so well from AI demand not by accident, but precisely because it has spent many years developing and strengthening its deep competitive advantages.

Whether AI demand cools – or keeps surging – Nvidia looks well-positioned to maintain its position at or close to the head of the pack of chip companies.

Nvidia has revenues and net profit margins many businesses could only dream of — $82bn and 71% respectively in its most recently reported quarter.

This still looks overvalued to me

At the right price, then, I would be happy to own Nvidia stock.

But that brings me to the second of the two questions I mentioned above: valuation.

At the moment, Nvidia stock sells for 31 times earnings.

To me, 31 times earnings does not look very attractive, especially since Nvidia’s earnings have ballooned in recent years.

If AI does see slowing demand, there is a risk the firm’s earnings could recede sharply – making the current share price look very costly indeed.

Nvidia stock’s glory days may not yet be over. Some investors believe AI is just getting going – and Nvidia’s position in that market is strong.

But I see a risk the share could move down sharply at some point if customer demand weakens – or even just if investor enthusiasm wanes. For now, I am ignoring Nvidia and focussing on other growth stocks in the market I think are far more attractively valued.

Should you invest £5,000 in Nvidia right now?

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Christopher Ruane does not hold any positions in the companies mentioned.