The past year has been particularly good for tech stocks. Tailwinds generated by artificial intelligence (AI) propelled the index S&P 500 to an increase of 23%, while the Nasdaq Composite rose 29%.
Among the best performers of the year, stocks nicknamed the “Magnificent Seven” stand out, and the semiconductor company Nvidia has undoubtedly attracted the most attention, becoming the best performing stock in the indice Dow Jones in 2024.
Over the past year, Nvidia has gained approximately $2.1 trillion in market capitalization, making it the fastest-rising company. This performance propelled Nvidia to become one of the most valuable companies in the world. While this trend may not last forever, Wedbush Securities technology analyst Dan Ives sees significant growth ahead for this AI leader, and I share that optimistic disposition.
Let’s take a look at Nvidia’s latest catalysts and why 2025 could be another remarkable year.
Over the past two years, Nvidia has established itself as the leader in the AI race, thanks in part to its graphics processing units (GPUs). These advanced processors are essential for developing generative AI applications.
The wide range of GPUs offered by Nvidia has allowed it to get ahead of competitors such asAdvanced Micro Devicescapturing around 90% of the GPU market.
NVDA Earnings Data (Quarterly) by YCharts.
This dominance has fostered steady growth in revenue and profits, allowing Nvidia to intensify its research and development (R&D) efforts and innovate new products. Let us mention BlackwellNvidia’s next GPU architecture, which would already be sold out for the next 12 months.
More broadly, Ives estimates that investments in AI infrastructure could exceed $1 trillion in the coming years. Nvidia is taking advantage of this increase in capital expenditure (capex), with investments in the European GPU cluster specialist I won’t and the acquisition of AI infrastructure company Run:ai for a reported $700 million.
Source de l’image : Getty Images.
Given the massive increase in Nvidia’s stock price, it makes sense to look at some of the company’s valuation metrics and cross-reference them with the catalysts mentioned above.
| Evaluation Metric | Value as of January 3 |
|---|---|
| Price/earnings ratio (P/E) | 56.7 |
| Expected P/E ratio | 48.8 |
| Price to Free Cash Flow (P/FCF) Ratio | 63.4 |
| Ratio PEG | 1.0 |
Data source: YCharts.
On the surface, these valuation multiples might give the illusion that Nvidia is an expensive stock. However, considering that the company’s P/E and P/FCF ratios are significantly lower than a year ago, Nvidia’s valuation profile appears quite attractive. This is because the company’s profits are growing at a faster rate than its value (price or market capitalization), so Nvidia’s valuation can be seen as reasonable.
Additionally, a PEG ratio of 1 indicates that Nvidia is currently fair value. Predicting Nvidia’s earnings performance over the next few years is tricky until Blackwell and the company’s peripheral investments begin to bear fruit.
Personally, I consider Nvidia a great investment choice right now, and I think the company could enter exclusive territory in 2025: the $4 trillion club. I’m excited to see how Nvidia performs this year, and I think the stock represents a compelling buying opportunity for AI and growth investors.
That said, before investing in Nvidia, it is important to keep in mind that the analyst team at Motley Fool Stock Advisor recently identified the 10 best stocks to buy, without including Nvidia in this list. The selected stocks could generate exceptional returns in the years to come.
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In conclusion, Nvidia’s future looks bright, but it raises the question of whether other companies will match its success in the AI space. It will be interesting to follow developments in this dynamic market in the coming months.
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