This year has once again been very favorable for technology stocks. The positive effects of artificial intelligence (AI) helped drive the index higher S&P 500 by 23%, while the Nasdaq Composite recorded an impressive increase of 29%.
Stocks of the Magnificent Seven are among the market’s biggest gainers, and none have generated as much excitement as the semiconductor leader, Nvidiawhich has established itself as the most successful action within the Dow Jones Industrial Average in 2024.
Over the last year, Nvidia has seen its market capitalization increase by approximately $2.1 trillion, making it the company with the highest valuation. This propelled Nvidia among the most valuable companies in the world. Although Nvidia’s current trend may indicate a possible pullback for the stock, Wedbush Securities technology analyst Dan Ives predicts significant growth in the future for this AI gem — a prediction I adheres.
Let’s look at Nvidia’s latest catalysts and see why 2025 could go down as a banner year for the company.
A promising future for Nvidia in 2025
Over the past two years, Nvidia has established itself as the undisputed leader in the AI race, and it all hinges on one key element: graphics processing units (GPUs). These GPUs are advanced chipsets necessary for the development of generative AI applications.
The wide range of GPUs offered by Nvidia has allowed it to stand out from competitors such asAdvanced Micro Deviceswhile cornering nearly 90% of the GPU market.
NVDA quarterly revenue data, provided by YCharts.
Nvidia’s success has therefore enabled steady growth in revenue and profits, giving it the means to increase its investments in research and development (R&D) and innovate with even more advanced products. Among these new advances is Blackwell, Nvidia’s next GPU architecture, which is reportedly already completely sold out for the next 12 months.
Although this represents an Nvidia-specific move, Ives is confident that overall investments in AI infrastructure could exceed a trillion dollars in the coming years. Nvidia is taking advantage of this increase in capital spending — illustrated by investments in the European GPU cluster company I won’tas well as the acquisition of AI infrastructure company Run:ai for an estimated $700 million.
Source de l’image : Getty Images.
Is Nvidia stock a good buying opportunity?
Given the significant increase in Nvidia’s stock price, it makes sense to look at some of the company’s valuation metrics and put them into perspective with the catalysts previously discussed.
At first glance, valuation multiples may make Nvidia seem like an expensive stock. However, when we consider that the price-to-earnings (P/E) ratio and the price-to-cash flow (P/FCF) ratio are significantly lower today than a year ago, the valuation profile from Nvidia appears rather attractive. This is because the company’s profits are growing at a faster rate than its value (price or market cap), making Nvidia’s valuation reasonable.
Additionally, a PEG ratio of 1 indicates that Nvidia is currently fairly valued. It’s difficult to predict what Nvidia’s earnings profile might look like in the coming years as Blackwell and the company’s peripheral investments begin to bear fruit.
Not only do I see Nvidia as a great buying opportunity right now, but I also think the company could be the first to join an exclusive circle in 2025: that of companies valued at $4 trillion. I’m enthusiastic about Nvidia’s performance this year and think the stock represents an attractive buying opportunity for AI and growth investors.
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*Stock Advisor returns as of December 30, 2024
Original article written by: Adam Spatacco. The opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
The Motley Fool site recommends Advanced Micro Devices, Nebius Group and Nvidia.
Takeaways
- Nvidia dominates the GPU market, with an estimated 90% share.
- New investments in AI infrastructure could reach a trillion dollars in the coming years.
- Blackwell, Nvidia’s latest GPU architecture, is already sold out for the next 12 months.
- Despite its high price, Nvidia’s valuation is considered reasonable relative to its growing profits.
- “Double Down” stocks offer an attractive investment opportunity for investors looking to take advantage of technology growth.
As artificial intelligence continues to grow and evolve, it will be fascinating to watch how Nvidia adapts and seizes new opportunities. Investors should remain attentive to market trends and analyze the movements of leading companies to take advantage of technological developments. Reflection on investment strategy can be crucial in these times of rapid change.
