Nvidia (NVDA) has become a stock market powerhouse, mainly due to its significant role in the booming field of artificial intelligence (AI). This sector, valued at $200 billion, is expected to skyrocket to $1 trillion by the end of the decade. Nvidia offers a wide range of AI products, including hardware and software, helping various companies throughout their AI journeys. CEO Jensen Huang refers to Nvidia as the “on ramp” to the AI world.
Nvidia’s most important product is its graphics processing units (GPUs). These powerful chips are essential for training and running AI models. Major tech firms like Microsoft and Amazon are among Nvidia’s biggest customers, driving billions in revenue. In the last fiscal year, Nvidia achieved a record revenue of over $130 billion, reflecting a significant growth spurt.
Over the past five years, Nvidia’s stock has skyrocketed by 1,500%. However, investors worried that the stock might be overpriced. Recently, general economic concerns led to a decline in stock prices, including Nvidia’s. Its stock is now valued lower than it has been in over a year, stirring debates about whether it has become too cheap to overlook.
Nvidia didn’t always enjoy this spotlight. Initially, the company focused on the gaming industry, providing GPUs for video games. Recognizing the broader applications of their technology, Nvidia developed the CUDA parallel computing platform, which opened doors to new markets. As businesses started using GPUs for AI, demand surged. For instance, Larry Ellison of Oracle mentioned begging Huang for more chips due to high demand. Recently, the launch of Nvidia’s Blackwell architecture contributed $11 billion in revenue in its first quarter, while the company’s gross margins remained above 70%, showcasing strong profitability.
Despite its successes, Nvidia recently faced a few challenges. Start-up DeepSeek trained its AI models using Nvidia’s less expensive GPUs, raising concerns among investors about potential revenue losses. Additionally, export controls on chip sales to China posed significant hurdles. Tariffs on imports introduced by the Trump administration further heightened worries about economic growth, impacting Nvidia’s stock value, which has dropped around 14% over the past month. Now, Nvidia is trading at a valuation of only 24 times its forward earnings, the lowest in a year.
So, is Nvidia a bargain now? The issues with DeepSeek seem minor, as major Nvidia clients are still investing significantly in AI. For example, Meta Platforms plans to spend up to $65 billion this year, indicating strong market confidence. Though export controls have affected business in China, Nvidia continues to grow in other regions.
As for the tariffs, while they present a challenge, they should be seen as a temporary obstacle. Companies quickly adapt to new trade policies. Considering these factors, Nvidia’s consistent strong earnings, market leadership, and focus on innovation suggest that it remains a compelling investment opportunity. At its current price, Nvidia could be a great buy for long-term investors.
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