Reliance on the computer market—NVIDIA’s main products are still in computer graphics chips. Any slowdown would adversely affect NVIDIA. Near market saturation meaning growth will be limited by the computer industry growth.
Reliance on a few large customers—Since NVIDIA’s product is packaged with that of its large customers, if any one of its large customers has a setback, NVIDIA suffers losses. Although if one of its large customers has a set back, usually that means another customer has gain.
Increased competition from the 800lb. gorilla in the chip space - Intel. Intel has been content with supplying low end graphics processors that are usually embedded on their motherboard products. However, the company has been eying NVIDIA's fat profits and has identified their market as a place for potential growth. Larrabee is the code name for Intel's upcoming, competing architecture (read more), and Intel is touting such advantages as a built in physics processor and lower power usage. With Intel and AMD's R&D experience and financial muscle, NVIDIA faces two very formidable competitors.
I think NVIDIA is a good company in a growing industry. However, I don't disagree with the market's risk discount on this one. These profits and cash flows will be under constant siege from very capable competition, and this is not a situation as investors we want to get into.