Nvidia (NASDAQ:NVDA) doesn’t really need an introduction. It now has an 80% hold over the global GPU market and no other company comes close to it when it comes to making very powerful AI chips.
it makes sense why the stock is up so much in the past two years as AI companies have poured money into buying these chips and venture capitalists haven’t stopped funding them. Moreover, hyperscalers and public companies are starting to put money into AI, doubling down despite the DeepSeek spook last month.
How the gains have been slowing down in the past few months, and the stock is now down 7% year-to-date. Has the rally come to an end, or is the stock still a buy in February? Let’s take a look.
Blackwell is now the linchpin holding Nvidia’s current valuation together. AI demand needs to stick around for it to pay off, and so far it has done so. Pre-orders are sold through 2025 and there are partnerships with many other Magnificent Seven companies regarding Blackwell. However, DeepSeek is something you should still consider here. It has started a trend towards highly efficient AI models, and DeepSeek being open source is allowing companies to quickly copy it to align with the trend.
On the other hand, AI CapEx is strong, and investors are still rewarding companies who are planning to spend tens of billions this year on AI. Analysts think the extra capacity from more efficient AI models will be offset by demand from even more powerful models that use the breakthrough from DeepSeek to get even better.
On the other hand, TSMC’s CoWoS-L packaging bottlenecks threaten output despite resolved yield issues. Trump’s tariffs on China will also make things worse. In addition, AMD’s MI300X series chips have an advantage when it comes to smaller models and inference. Cheaper AI models could make AI startups choose cheaper chips from AMD. If you combine that with many of the mega-cap companies making their own custom cloud chips, this may turn into a long-term drag for Nvidia.
Nvidia hasn’t shown any sign of cooling in the past few quarters and has continuously trounced Wall Street’s estimates. Nvidia beating estimates by wide margins is now expected by analysts.
In Q3 FY2025, it reported $35.1 billion in revenue. up 94% year-over-year, with data center revenue up 112% to $30.8 billion. Non-GAAP EPS reached $0.81 and grew 103% year-over-year. These results follow a streak of blowout results in earlier quarters.
The company expects Q4 FY2025 revenue at $37.5 billion with gross margins stabilizing at around 73%. Over $1 trillion in data center upgrades are expected through 2027, with Blackwell GPU systems projected to generate $120 billion to $210 billion in 2025 sales. Phil Panaro of Boston Consulting Group predicts Nvidia could reach $600 billion in annual revenue by 2030.
A bet on NVDA is essentially a bet on the broader AI industry. So, if you think that the AI industry will continue to see lots of growth and spending in the coming years, then yes, NVDA is a buy. It trades at just 28 times forward earnings, which is a bargain if you compare it to most other AI stocks. You should keep in mind that these earnings and margins won’t stick around if competitors catch up with its AI chips.
Nvidia’s net margin is better than 99.2% of its semiconductor peers for a reason, and it will likely take years before any competitor can start to catch up. That too will be an uphill battle due to how much Nvidia is spending to get ahead.
Analysts seem very bullish, though. The consensus price target of $166.23 implies 29.2% upside. Nvidia could easily deliver those gains if it trounces estimates again in Q2.
In the near term, Nvidia doesn’t seem to have any big problems. Its Blackwell chips are sold out, AI demand remains strong, the DeepSeek fears have started to cool down, and hyperscalers are doubling down on AI. All of this should lead to a good year for NVDA, barring a recession. So, I believe NVDA stock is a buy.
