NVDA

Is It Too Late to Buy Nvidia Stock?

All eyes were set on Nvidia's (NASDAQ: NVDA) fiscal 2025 first-quarter results (for the three months ended April 28), which were scheduled for release on May 22. And the company didn't disappoint. It handsomely crushed Wall Street's expectations and issued terrific guidance for the current quarter.

The health of the artificial intelligence (AI) market was a big reason why investors were waiting with bated breath for Nvidia's results. There have been concerns that Nvidia stock could be in a bubble, and that the company might not be able to sustain its outstanding growth thanks to increasing competition and a pullback in AI infrastructure spending.

After all, Nvidia has been the prime beneficiary of the proliferation of AI as its chips have played a central role in helping train AI models such as ChatGPT and form the backbone of the AI services offered by major tech giants. The semiconductor specialist's results cement the fact that AI is not just hype, which is why its customers are pouring billions of dollars into its hardware.

Does this mean investors who have been skeptical about Nvidia's AI-driven future and have missed the stock's red-hot rally should start buying the stock now? Or is it too late for them to buy shares of a company that has soared a stunning 628% since the beginning of 2023?

Nvidia's phenomenal growth is here to stay

Nvidia's revenue in fiscal Q1 skyrocketed 262% year over year to $26 billion. Meanwhile, the company's gross margin jumped 12 percentage points year over year to 78.9% thanks to the immense pricing power it enjoys in the AI chip market. As a result, Nvidia's adjusted earnings grew an incredible 461% year over year to $6.12 per share.

Analysts were expecting $5.59 per share in earnings from Nvidia on revenue of $24.6 billion. However, another quarter of terrific growth in the company's data center revenue helped it coast past estimates. More specifically, Nvidia's data center revenue shot up a whopping 427% year over year to $22.6 billion, accounting for 87% of its top line.

Nvidia's management attributed this terrific growth to "higher shipments of the NVIDIA Hopper GPU computing platform used for training and inferencing with large language models, recommendation engines, and generative AI applications." What's worth noting is that Nvidia's Hopper platform is set to be succeeded by new chips based on the Blackwell architecture, but demand continues to head higher.

That's because Nvidia's CUDA software platform, which allows developers to "speed up their applications by harnessing the power of GPU accelerators," has led to a 3x jump in AI inference workloads on the company's Hopper flagship processor, the H100. As a result, cloud service providers have been able to significantly lower their costs of running popular AI models.

And now, Nvidia is all set to double down on the AI chip opportunity by bringing its Blackwell chips into full production. The company points out that the demand for its Blackwell processors "is well ahead of supply, and we expect demand may exceed supply well into next year."

The chipmaker enjoys an almost monopolistic position in the AI chip market with an estimated market share of 95% thanks to the technology lead it enjoys over rivals. Moreover, Nvidia's ability to speed up existing hardware with the CUDA software platform, which it offers for free, gives its customers the incentive to wait to get their hands on its chips.

So, it is not surprising to see that Nvidia's rivals haven't been able to gain much traction in the AI chip market despite the former's supply constraints. This also explains why Nvidia's outlook points toward another terrific year.

The company has guided for $28 billion in revenue in the current quarter, which would be a 107% increase from the year-ago period. Additionally, the company is projecting a non-GAAP (adjusted) gross margin of 75.5% for the current quarter, which would be a nice increase over the year-ago period's 71.2%. So, Nvidia is on track to deliver another quarter of impressive growth in revenue and earnings.

More importantly, the company's fiscal Q1 revenue and fiscal Q2 guidance suggest that it is on track to finish the first half of the year with $54 billion in revenue. That's nearly 90% of the revenue the chipmaker delivered in fiscal 2024. Market research firm Omdia predicts Nvidia could sell $87 billion worth of data center GPUs this year, and the segment's revenue in fiscal Q1 indicates that it is well on track to hit that mark.

All this indicates why Nvidia's revenue in fiscal 2025 is set to surpass $100 billion, followed by more gains over the next couple of years.

Buying the stock is a no-brainer move

Nvidia stock is currently trading at 62 times trailing earnings, which is a discount to its five-year average earnings multiple of 67. There is no doubt that the stock is richly valued compared to the U.S. technology sector's average of 42, but the pace at which it is growing justifies its valuation. As the following chart indicates, Nvidia's bottom-line growth has simply taken off in the past year, allowing it to justify its price-to-earnings ratio.

NVDA PE Ratio Chart

NVDA PE Ratio data by YCharts

Additionally, Nvidia's forward earnings multiple of 43 points toward more growth in the company's bottom line. That's not surprising considering how rapidly Nvidia's data center business is forecast to grow in 2025. Investors, therefore, can still consider buying more shares of Nvidia as the booming demand for AI chips and the company's dominant position in this space could send this AI stock even higher.

Should you invest $1,000 in Nvidia right now?

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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