Here's a paradox for you: Nvidia Corp. (NVDA) just delivered one of the most spectacular earnings reports in its history, and the stock is having its worst month in over three years. Through November 25, shares are down 14% month-to-date, the steepest November decline since September 2022. If you're wondering how that math works, welcome to the strange reality of AI stock investing in late 2024.

The slide is particularly jarring when you consider Nvidia's November track record. Historically, this has been one of the company's best months, averaging returns of 10.55% with a 77% win rate. Since 1999, Nvidia has posted only four double-digit November declines. And yet here we are, watching the AI chipmaker stumble after reporting numbers that would make most CFOs weep with joy.

Let's zoom out for perspective. Nvidia has returned over 1,300% in the past three years, becoming the undisputed face of the generative AI revolution. That's the kind of performance that turns a chip company into a cultural phenomenon. But now investors are wrestling with an uncomfortable question: Is this just a healthy correction in an otherwise unstoppable trend, or are we watching the beginning of a broader unwind in the AI trade?

When Blockbuster Earnings Aren't Enough

Earlier this month, Nvidia posted third-quarter results that can only be described as spectacular. Revenue hit $57 billion, easily beating Wall Street's expectations. The company raised its outlook, reinforcing its dominance in the AI chip market. Everything looked textbook perfect.

And then the stock started falling anyway. The initial catalyst was growing concern that AI stocks had simply run too hot for too long. When you've gained 1,300% in three years, even good news can feel like a reason to take profits. Valuations that looked reasonable during the AI euphoria suddenly started looking stretched as reality set in.

But there's more to the story than just profit-taking. Competitive threats are starting to emerge in a market that Nvidia has dominated with almost monopolistic control. Reports surfaced this week that Alphabet Inc. (GOOGL) (GOOG) is negotiating to lease its custom tensor processing units (TPUs) to Meta Platforms Inc. (META) and other hyperscalers. The goal? Capture as much as 10% of Nvidia's current AI chip revenue by luring large customers away from its dominant GPU ecosystem.

That might not sound like much, but 10% of Nvidia's AI chip business is serious money. And perhaps more importantly, it signals that the biggest tech companies are actively looking for alternatives to reduce their dependence on a single supplier. Competition tends to be bad for monopoly-like margins.

December's Track Record Isn't Exactly Comforting

So can December turn things around? The historical data offers a complicated answer.

Since 1999, December has been slightly positive for Nvidia on average, posting a 3.2% return with a 62% win rate. That sounds okay until you look at recent history, which tells a much darker story. Over the past decade, December has actually been Nvidia's worst-performing month on average, with a 1.69% loss and only four positive months out of the last ten. Even more striking: Nvidia has finished December in the red in four of the past five years.

Looking at what happened after previous November disasters doesn't provide much clarity either. In 2000, after November dropped 34.8%, December delivered another brutal 19.1% decline. But in 2007 and 2008, the stock rebounded nicely with gains of 7.86% and 8% respectively after double-digit November losses. Then in 2018, another 18.3% decline followed the November slump. In other words, past performance suggests absolutely nothing about what comes next.

What It All Means

Nvidia's November weakness, despite stellar earnings, tells us something important about where we are in the AI investment cycle. Fundamentals still matter, but so do valuations and competitive dynamics. The fact that the stock is falling while the business is thriving suggests that investors are starting to price in more realistic growth expectations and increased competition.

The coming weeks should provide clarity on whether this pullback represents a temporary pause in a longer bull run or something more significant. December's historically mixed performance means we could see anything from a sharp recovery to continued weakness. What's clear is that the AI trade has entered a new, more complicated phase where even dominant players like Nvidia can't take investor enthusiasm for granted anymore.