NVIDIA Corporation (NVDA) Fell on Concerns Over the Sustainability of AI Infrastructure Capital Expenditure

Soumya Eswaran

Mon, May 18, 2026 at 10:21 AM EDT 4 min read

Baron Capital, an investment Management Company, released its first quarter 2026 investor letter for its “Baron Opportunity Fund”. A copy of the letter can be downloaded here. The Fund declined 8.88% (Institutional Shares) in the quarter, outperforming the Russell 3000 Growth Index’s (the Benchmark) -9.54% return, but trailing the S&P 500 Index, which dropped 4.33%. U.S. equity markets started the year positively, driven by investor enthusiasm for pro-growth policies like reshoring and AI. In February, sentiment shifted due to losses in software, business services, and info industries, driven by AI disruption fears. The sell-off intensified after the U.S. and Israel attacked Iran. Market trends showed rotation from the Magnificent Seven, software, and growth stocks into cyclical, defensive, and value segments. The Fund focuses on disruptive secular growth trends that generate profitable opportunities. The first quarter was challenging for the Fund with war, rising oil and inflation, AI fears, and sector rotations. In addition, please check the Fund’s top five holdings to know its best picks in 2026.

In its first-quarter 2026 investor letter, Baron Opportunity Fund highlighted stocks like NVIDIA Corporation (NASDAQ:NVDA). NVIDIA Corporation (NASDAQ:NVDA) is a leading data center-scale AI infrastructure company that operates through Compute & Networking and Graphics segments. On May 15, 2026, NVIDIA Corporation (NASDAQ:NVDA) stock closed at $225.32 per share. One-month return of NVIDIA Corporation (NASDAQ:NVDA) was 11.27%, and its shares gained 65.84% over the past 52 weeks. NVIDIA Corporation (NASDAQ:NVDA) has a market capitalization of $5.5 trillion.

Baron Opportunity Fund stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q1 2026 investor letter:

"NVIDIA Corporation (NASDAQ:NVDA) remains the dominant platform for AI training and inference. At GTC, the company unveiled a more diversified product roadmap — including Vera CPU-only servers for agentic workloads and an expanded inference strategy — reflecting the organizational agility we look for in management teams. We continue to view NVIDIA as the leading merchant platform for bringing AI to the world, with a long runway driven by enterprise adoption and Physical AI. Shares of NVIDIA Corporation, a semiconductor and systems company specializing in compute and networking platforms for accelerated computing, detracted from performance during the quarter as concerns over the sustainability of AI infrastructure capital expenditure intensified, with many market participants coming to view 2027 as a peak spending year, and as NVIDIA’s largest customers continue pursuing custom silicon architectures, raising questions about the company’s longer-term revenue trajectory. We retain conviction in the position. Demand for AI infrastructure remains insatiable, driven by continued returns to scaling training workloads and a meaningful inflection in inference demand, and the remarkable acceleration in revenues at frontier AI labs — accompanied by improving unit economics — validates the sustainability of long-term infrastructure investment. While some hyperscalers and AI labs are pursuing in-house silicon programs, these efforts remain in early stages and require substantial investment in both design and software, with Google’s TPUs and Amazon’s Trainium being the notable exceptions. We expect NVIDIA to continue performing well with its largest customers while expanding its footprint across sovereign deployments, on-premise enterprise installations, and cloud infrastructure buildouts globally. At current prices, the stock is attractively valued on next year’s estimated financial results, and we believe AI compute demand is a durable, multi-year phenomenon — not the peak cycle the market fears. We continue to maintain NVIDIA as a top holding."