Nvidia's Stock Performance and Future Prospects: A Comprehensive Analysis

Nvidia: 1 Stellar Reason to Buy the Latest Dip | The Motley Fool

The chipmaker's latest pullback could be a superb entry point for long-term investors. Remember when Nvidia (NVDA -6.39%) was just that company making graphics cards for gamers? Those days are long gone. Riding the artificial intelligence (AI) wave, Nvidia has transformed into the backbone of this booming industry. Its graphics processing units (GPUs), once the darlings of the gaming world, now power the massive data centers driving the AI boom. This pivot has sent Nvidia's stock soaring over the past two years, catapulting the company into the ranks of the world's most valuable enterprises. But even tech darlings aren't immune to market jitters. August has been a rocky month for Nvidia's stock, with shares taking a couple of tumbles as investors grapple with its sky-high valuation. The company reported fiscal 2025 second-quarter results Wednesday after market close and shares were down roughly 4% at 1:30 p.m. on Thursday. Yet amid this turbulence, one compelling reason stands out for why this latest dip might just be a golden opportunity for investors. Let's dive into Nvidia's recent roller-coaster ride and uncover why its actions speak volumes about its prospects. Trading at about 34 times projected earnings for fiscal 2027, some investors are scratching their heads, wondering if Nvidia's growth can justify its lofty price tag. The long and short of it? Nvidia's shares are priced as if its dominance in AI-capable chips will last another decade, with demand staying red-hot the entire time. But here's the kicker: Nvidia's recent top-line growth is nothing short of mind-blowing. Data center revenue skyrocketed from $3.6 billion in Q4 fiscal 2023 to a whopping $26.3 billion in Q2 fiscal 2025. This explosive growth comes from an insatiable appetite for AI-powered data centers, as tech leaders like Microsoft and OpenAI march steadily toward artificial general intelligence. While the market's getting jittery, Nvidia's management team is doubling down with a massive vote of confidence. They're buying back shares like there's no tomorrow, and they're not planning to pump the brakes anytime soon, despite the stock's rich valuation. In Q2 fiscal 2025, Nvidia spent $7.2 billion on share repurchases. To put that in perspective, it only dished out $246 million on dividends during the same period. But wait, there's more: The board of directors OK'd an additional $50 billion for share repurchases on Aug. 26, 2024, with no expiration date. That's a strong vote of confidence by any measure. Nvidia's board isn't just throwing darts in the dark here. Their next-generation GPU, codenamed Blackwell, is shaping up to be a cash cow. The company is projecting "several billions" in Blackwell revenue for Q4 fiscal 2025. This forecast underlines the relentless demand for Nvidia's cutting-edge AI tech. Of course, not everyone's over the moon with optimism. Some industry experts are raising eyebrows about the sustainability of this rocket-ship growth. They're wondering if Nvidia's big-name customers -- such as Microsoft, Amazon, Meta, and Alphabet -- will keep pouring money into AI without seeing immediate returns on capital. The skepticism isn't just coming from armchair critics. MIT economist Daron Acemoglu is just one person who's questioned whether AI can deliver meaningful returns on capital in the short term, despite the massive investments from these tech giants. But most of these contrarian voices are coming from outside Silicon Valley. Inside it, faith in AI's immediate potential remains unshakeable. For those on the inside, Nvidia's stock remains the hottest ticket in town. And the numbers back it up: expected revenue of $32.5 billion for the current quarter, a mind-boggling 79% year-over-year increase. The company's consistent innovation, iron grip on the market, and management's unwavering confidence paint a pretty rosy picture for the stock's future. The cherry on top: Nvidia's aggressive share buybacks offer a compelling reason to consider scooping up shares on this latest dip. The main beef against Nvidia seems to be that AI is all hype and the party's about to end. But AI is already making waves in the real world, and this is just the tip of the iceberg. I predict the next few years will see AI-powered medical facilities, self-driving cars, and a whole host of game-changing technologies hit the mainstream. So while a healthy dose of skepticism is always good, the facts on the ground tell a dramatically different story.

Where Will Nvidia Stock Be in 1 Year? | The Motley Fool

The chipmaker continues to grow at an eyewatering clip. Second-quarter earnings were no exception. Following the 2022 launch of OpenAI's ChatGPT, generative artificial intelligence (AI) has taken Wall Street by storm. Few companies have benefited more than Nvidia (NVDA -2.10%) -- the chipmaker that creates the hardware needed to make this new technology possible. An explosive second-quarter earnings report suggests its boom is far from over. Nvidia's revenue soared 122% year over year to $30 billion, compared to analysts' expectations of $28.7 billion. Growth was driven by demand for advanced graphics processing units (GPUs) like the H200, which helps train and run AI algorithms. The company's bottom line also remains buoyant, with net income soaring 168% to $16.6 billion. How much longer can Nvidia's rally continue? Let's dig deeper into what the next 12 months may have in store for this technology leader. Nvidia is becoming an increasingly polarizing stock. While few would deny its operational momentum, we can question the AI industry buying up its pricy hardware. So far, things aren't squaring up. While consumer-facing large language models (LLMs) are fun to play with, they seem far from a transformational tech megatrend. And even if these algorithms could become smart enough to make a big splash, their monetization potential remains unclear because of competition from free, open-source options like Meta's Llama or Elon Musk's Grok. Analysts at Goldman Sachs (GS -0.78%) highlight these alarming dynamics. In a June report, they suggest that the roughly $1 trillion tech giants invested in AI capital expenditures might never pay off. If Nvidia's clients don't start making money, they will eventually stop buying the company's expensive chips, leading to sales declines and margin erosion. With a trailing price-to-earnings (P/E) multiple of 59 compared to the Nasdaq-100 average of 32, Nvidia's valuation prices in significant future expectations. And if these don't materialize, shares could crash. In the best-case scenario, Nvidia's long-term rally is only just beginning. According to analysts at Bloomberg, the generative AI industry could expand at a compound annual growth rate (CAGR) of 42% to $1.3 trillion by 2032 as investment shifts from training infrastructure to consumer use cases like software and advertising. If this is true, Nvidia's current sales are only a drop in the bucket compared to its long-term potential. Management is also pushing back against the suggestion that its clients won't profit from their AI investments. Nvidia CFO Colette Kress claims cloud computing providers are seeing an "immediate and strong return" on AI investment. On the earnings call, Kress claimed that $1 spent on Nvidia hardware could generate $5 over the next four years. That number rises to $7 for the company's newest products, like the HDX H200 AI accelerator. However, while robust demand suggests Nvidia's cloud clients see value in its hardware, Kress's claims might be a little misleading. These companies still serve the infrastructure side of the AI market. They buy Nvidia GPUs to rent out to AI start-ups. If the consumer-facing start-ups can't monetize the technology, they will eventually stop renting GPUs and the cloud service providers will stop buying them. Nvidia is a great company because it sells products the market wants. And its stock will probably continue soaring in the near term. However, the foundations of long-term demand for AI GPU products are shaky. This hype-driven industry could be in for a reckoning over the next 12 months if the software side of the opportunity doesn't start showing more progress toward monetization. Investors should consider taking profits or avoiding Nvidia stock until more information becomes available.

Will Nvidia Be Worth More Than Apple by 2030? | The Motley Fool

The chipmaker has consistently outperformed Apple over the last decade. Nvidia's (NVDA -2.10%) business has surged since the start of last year, fueled by a boom in artificial intelligence (AI). The company's years of expertise in graphics processing units (GPUs) gave it a head start over rivals Advanced Micro Devices and Intel in AI. These chips are crucial to developing AI models, thanks to their ability to perform multiple tasks simultaneously. As a result, Nvidia's chip sales have skyrocketed, illustrated by a 524% jump in data center revenue since Jan. 1, 2023. As earnings have risen, so has Nvidia's stock. Its share price climbed 763% since the beginning of last year, which has seen its market cap rise from $360 billion to over $3 trillion. This growth has allowed it to climb the ranks of the world's most valuable companies, with Nvidia taking the No. 2 spot just behind Apple (AAPL -0.68%). Nvidia's meteoric rise begs the question: Will it surpass Apple in market cap, and if so, when? The chipmaker has consistently outperformed Apple in growth over the last decade, with its stock up more than 26,000% compared to Apple's 790% growth. Most of that growth began in 2023, when Nvidia's dominance in AI chips send the stock soaring. As a result, Nvidia looks likely to steal Apple's crown as the world's most valuable company, and it could do it as soon as 2030. Here's why. Nvidia's business exploded over the last 10 years, becoming a critical fixture in the chip market. The company initially made a name for itself in gaming as one of the first to begin selling GPUs to the consumer market. As a result, Nvidia's chips are now used by gamers worldwide to build high-performance gaming PCs. The tech giant's success in gaming has allowed it to branch out to multiple other sectors. Nvidia's chips now power game consoles, data centers (which help run various cloud platforms), self-driving technology, robotics used in Amazon warehouses, laptops, and AI models, allowing investors to profit from multiple growth catalysts. Nvidia's growth massively outpaced Apple's by several metrics since 2014. Even before a boom in AI, the chipmaker was on a trajectory to eventually surpass the iPhone company. Nvidia's free cash flow reached $39 billion this year, significantly lower than Apple's $104 billion. However, Nvidia's free cash flow has increased by 125% over the last 12 months, while Apple's has risen by 5%. As a result, Nvidia's cash hoard is expanding rapidly and could eventually overtake Apple's, allowing it to grow its business more easily and widen its lead AI. Apple is staunchly expanding its role in artificial intelligence this year, unleashing a wave of generative updates across its product lineup and releasing devices better suited for the heavy workloads required to run AI models. However, the company faces steep competition from fellow tech companies like Samsung, Microsoft, and Alphabet, each with competing AI products. In smartphones alone, Apple was responsible for 15.8% of the market in the second quarter of 2024, a slight decrease from its 16% share in Q2 2023. The company lost out to rising Chinese brands like Xiaomi and OPPO. Meanwhile, in August, Alphabet's Pixel 9 smartphone debuted with AI features that could give Apple's coming iPhone 16 a run for its money. Conversely, Nvidia accounts for an estimated 90% of all AI GPUs.AMD and Intel are working to catch up in the industry. However, Nvidia is unlikely to lose the top spot soon as a developer favorite with more financial resources than its peers. For reference, AMD's free cash flow reached just over $1 billion in 2024, while Intel's sunk to a negative $12 billion. The AI market is expanding quickly, with companies increasingly needing powerful chips to offer the most cutting-edge products. Nvidia has an exciting opportunity to keep releasing improved chips annually, with dozens of AI-minded companies motivated to buy them to stay competitive. As a result, Nvidia is positioned to keep seeing gains from the industry for years and could easily surpass Apple's market cap by the end of the decade. Consequently, it's worth considering Nvidia's stock now before it's too late.

Nvidia's Stock Has Peaked, and 1 Under-the-Radar Performance Metric Proves It | The Motley Fool

This operating metric all but confirms that Nvidia's best days are in the rearview mirror. Since the advent of the internet roughly three decades ago, investors have pretty much always had a buzzy trend or innovation to captivate their attention. However, none of these other next-big-thing trends came anywhere close to rivaling what the internet did for corporate America. But after a long wait, the artificial intelligence (AI) revolution has left professional and everyday investors wide-eyed with its potential. Although estimates vary, as you'd expect from a game-changing technology, the analysts at PwC see AI adding $15.7 trillion (yes, with a "t") to the global economy via various consumption-side benefits and productivity gains by the turn of the decade. No company has benefited more directly from the hype surrounding AI and its seemingly limitless ceiling than Nvidia (NVDA -6.39%). When the page turned to 2023, Nvidia was a $360 billion company that was on the fringe of being one of America's most-important tech stocks. But as of the closing bell on Aug. 28, 2024, it was worth $3.09 trillion. In June, it briefly became the most valuable publicly traded company, shortly after completing its historic 10-for-1 stock split. No deep digging is required to flesh out why Nvidia added, at one point, well over $3 trillion in market value in less than 18 months. In short order, the company's H100 graphics processing unit (GPU) became the preferred chip in AI-accelerated data centers. It's effectively the brain that powers generative AI solutions, facilitates the training of large language models (LLMs), and fuels split-second decision-making by AI-driven software and systems. Demand for Nvidia's hardware has completely overwhelmed supply. Producing the must-have AI-GPU has afforded Nvidia a jaw-dropping amount of pricing power. Whereas Advanced Micro Devices (AMD -0.59%) is selling its MI300X AI-GPU for between $10,000 and $15,000, Nvidia's H100 generally costs between $30,000 and $40,000. Nvidia's CUDA software platform has played a key role in its success, too. CUDA is the toolkit developers use to build LLMs as well as get as much computing capacity out of their GPUs as possible. CUDA has been an indispensable tool that's helped keep Nvidia's customers loyal to its ecosystem of products and services. The end result of this seemingly textbook expansion has been six consecutive quarters where the company's reported sales and profits completely trounced the consensus of Wall Street analysts. But in spite of this success, one under-the-radar performance metric appears to all but confirm that Nvidia's best days are in the rearview mirror. As I stated earlier this week, I wasn't going to be shocked one bit if Nvidia blew past Wall Street's consensus revenue and earnings per share (EPS) estimates for the fiscal second quarter (ended July 28) -- which is precisely what it did. It's not uncommon for analysts to be conservative with their estimates and provide a low enough bar for companies to clear. But headline figures, such as revenue and net income, only capture part of the story. With Nvidia, the one performance metric that tells a more thorough story about where it's headed is its gross margin. Personally, I prefer to use adjusted gross margin, which removes acquisition-related expenses and stock-based compensation; but either gross margin or adjusted gross margin works fine for this discussion. During the fiscal first quarter (ended April 28), Nvidia's adjusted gross margin expanded to an almost unthinkable 78.35%. In a span of five quarters, it's risen by close to 14 percentage points, which is a reflection of the company commanding such high price points for its AI-GPUs. However, Nvidia also guided to an adjusted gross margin of 75.5% (+/- 50 basis points) for the fiscal second quarter in its first-quarter report. If it were to hit this range, it would mark the first sequential quarterly decline in adjusted gross margin in two years. After the closing bell on Wednesday, Aug. 28, Nvidia delivered its much-anticipated fiscal second-quarter operating results, with adjusted gross margin falling by 320 basis points to 75.15%. While this is within range of what the company forecast three months prior, it's at the lower end of what was expected. What's more, Nvidia's fiscal third-quarter outlook calls for the possibility of additional gross margin contraction, with an adjusted gross margin forecast of 75% (+/- 50 basis points). Although its adjusted gross margin is still up substantially from where things stood 18 months ago, there appears to be no question that the tide is turning -- and not for the better. Even though Nvidia is selling more of its H100 chips, and CEO Jensen Huang has noted that demand remains strong for its next-generation Blackwell GPU architecture, the lion's share of its adjusted gross margin expansion has been the result of AI-GPU scarcity and its otherworldly pricing power. The first problem is that AI-GPU scarcity will be abating over time. AMD has been increasing production of its MI300X, and it doesn't have the same supply constraints that Nvidia has contended with from leading chip fabricator Taiwan Semiconductor Manufacturing (TSM -0.03%). As external competitors enter the space and ramp their output, Nvidia's pricing power will be steadily whittled away. It's also highly likely that suppliers are going to want a bigger piece of the pie. Taiwan Semiconductor is in the process of meaningfully expanding its chip-on-wafer-on-substrate (CoWoS) capacity, which is a necessity for packaging the high-bandwidth memory needed in AI-accelerated data centers. Increasing its CoWoS capacity is likely to translate into higher costs on Nvidia's end to boost production. And it's not just external competition that this leading AI juggernaut needs to worry about. Nvidia's four largest customers by net sales (all members of the "Magnificent Seven") are developing in-house AI-GPUs for use in their high-compute data centers. The H100 and Blackwell GPUs maintaining their computing capacity advantages won't to be enough to dissuade these top customers from using their in-house chips and denying Nvidia valuable data center "real estate." The other major issue working against Nvidia is history. At no point over the last 30 years has there been a next-big-thing technology, innovation, or trend that's avoided an early-innings bubble. All technologies need time to mature, and artificial intelligence doesn't appear to be the exception to this unwritten rule. Although Nvidia has enjoyed large orders from its top customers, the overwhelming majority of businesses investing in AI lack a clear game plan. Even Meta Platforms, which is one of Nvidia's top four customers by net sales, has no intention of meaningfully monetizing its AI investments anytime soon. This clear lack of direction, coupled with the company's adjusted gross margin forecast, effectively confirms that Nvidia's stock has peaked.

Here's Why Nvidia's New $50 Billion Buyback May Bolster the Bear Case for the Stock | The Motley Fool

The tech company's new share repurchase authorization may seem big in absolute terms but it's underwhelming relative to its $3 trillion market capitalization. Nvidia's (NVDA -6.39%) fiscal second-quarter earnings report is out, and it appears the chipmaker is raking in massive sums of cash. Revenue for the period was $30 billion, up 122% year over year. Even more, earnings per share soared 168% to $0.67. Further, free cash flow for the quarter was about $13.5 billion, up from approximately $6.0 billion in the year-ago period. "NVIDIA achieved record revenues as global data centers are in full throttle to modernize the entire computing stack with accelerated computing and generative AI," said Nvidia founder and CEO Jensen Huang in the company's quarterly report. All of this is great. But in the context of Nvidia's nearly $3 trillion market capitalization, it's not as impressive. Herein lies the problem with Nvidia stock: The valuation may simply be a bit ahead of itself. One telling way to further highlight this is by taking a look at the company's share repurchase program and viewing it next to its massive market cap. Nvidia repurchased $15.4 billion worth of its shares over the last two quarters. This would leave $7.5 billion of authorized cash for further repurchases, except the company just announced that its board of directors authorized an additional $50 billion for repurchases. Sure, $50 billion is a huge sum. But it's a bit small in the context of Nvidia's approximately $3 trillion market cap. Even when you add in the $7.5 billion it still has from its previous program, total outstanding cash authorized for repurchases amounts to less than 2% of Nvidia's market cap. Compare this to the $60 billion authorization Apple (AAPL 1.46%) announced when it got serious about share repurchases in 2013. This amounted to nearly 16% of the company's shares outstanding at the time. Fast forward to Apple's first full quarter following this authorization and the company spent $11 billion buying back its stock. And what was Apple's market cap at the time? Around $400 billion. In contrast, Nvidia spent just about $7.2 billion in its most recent quarter repurchasing shares even though the company's market capitalization amounts to about $3 trillion today. In one final comparison with Apple, Nvidia's cash, cash equivalents, and marketable securities currently total $34.8 billion, or just over 1% of the company's market capitalization; yet Apple's cash at the time it got serious about repurchases was $147 billion, or more than a third of its market capitalization. In short, Nvidia's underwhelming repurchase program (and cash balance to support it) relative to its market capitalization arguably draws attention to the fact that its valuation may be a bit inflated. The other issue with Nvidia's repurchase program is the timing. With shares trading at around 55 times earnings, the stock may have already priced in the continued upside for this cyclical business. Repurchasing shares at a potentially fair or overvalued price isn't always in the best interest of shareholders. It may be better for Nvidia to hold onto cash and buy back its stock if it were available for a better price -- a price that looks like a clear discount to a conservative estimate of the stock's intrinsic value. Of course, Nvidia's business performance is worth applauding. It's incredible how the company has innovated and executed to capitalize on the demand for AI-fueled products and services. Further, the company's growth rate and profitability is astounding. Still, none of this addresses the key concern investors should have: Valuation. Sure, it's possible that the company easily grows into its valuation. But the cyclical nature of semiconductor businesses and the industry's long history of intense competition warrant some caution at the stock's current price.