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.