NVIDIA NVDA is currently considered relatively undervalued. The trailing 12-month price-to-earnings ratio (P/E) was 53.86x, which is lower than the industry average of 63.16x. This low valuation could indicate market skepticism about NVDA’s growth potential or reflect mispricing for a company poised to maintain its leadership in AI computing through 2025. There may be.
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The key question for investors is how to approach NVDA given this valuation. A careful assessment of the company’s fundamental strengths and weaknesses as a leading designer of artificial intelligence (AI) chips is essential to making informed decisions.
NVDA’s New Blackwell Architecture: A Game Changer for AI
NVIDIA recently introduced a new generation of chips called the Blackwell architecture. These chips are many times faster than previous generations when performing certain tasks. This increase in speed allows computers to process data more quickly and efficiently, making it extremely valuable to businesses that rely on AI. For example, chatbots like ChatGPT can provide smarter and faster answers thanks to these chips.
Amazon.com Inc AMZN, Microsoft Corporation MSFT, Alphabet Inc GOOGL is a company that provides cloud services, which allow businesses to rent computing power instead of purchasing equipment. These companies are rapidly adopting NVIDIA’s new Blackwell GPUs to power their products, especially for AI and high-performance computing tasks.
NVDA’s role in building tomorrow’s AI factories
Imagine a factory that creates intelligence rather than cars or furniture. These “AI factories” use powerful NVIDIA hardware and software to continuously train and improve AI systems. Like traditional factories, they work day and night to churn out smarter, more capable AI models.
This entire process (training the AI and deploying it to perform the task) requires a combination of specialized hardware (NVIDIA GPUs) and smart software. NVIDIA technology is the engine that powers these factories, allowing them to generate intelligence with incredible efficiency.
NVIDIA’s infrastructure isn’t just for the tech giant. Many small AI-focused startups rely on NVIDIA tools to build and deploy their innovations. These startups are creating everything from automated legal assistants to digital art platforms powered by generative AI.
As generative AI becomes a multibillion-dollar industry, demand for NVIDIA products continues to grow as more companies, large and small, enter this transformative space.
NVDA’s Global Expansion: Powering AI Beyond Borders
NVIDIA isn’t just a leader in one country or region; we’re known around the world. Many countries want to build advanced AI systems tailored to their unique needs, such as using local languages or solving specific challenges in industries such as healthcare or education.
NVIDIA is helping these countries by providing powerful GPU and software technologies that enable them to build these systems. This includes working with governments and businesses to build AI infrastructure within their borders.
A leading AI chip designer is collaborating with an Indian company to build an AI “factory” where large numbers of NVIDIA GPUs work together to train and run advanced AI models.
In Japan, NVIDIA technology powers the country’s most powerful AI supercomputer. These systems can handle tasks such as analyzing complex scientific data, predicting weather patterns, and even advancing manufacturing robotics.
NVDA’s Potential: A Big Winner in 2025?
NVIDIA’s impressive performance is reflected in its one-year price chart. The stock rose 175.9%, significantly outpacing the industry’s rise of 124%. Despite this strong growth, the stock remains undervalued, with its current P/E ratio below its five-year median of 68.61, indicating significant potential for further upside in 2025.
1 year price chart
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Given this positive development, most analysts expect NVIDIA to maintain strong gross margins despite supply constraints, stabilizing and improving as Blackwell’s performance expands. Additionally, returning $11.2 billion to shareholders through share repurchases and dividends in the third quarter of fiscal 2025 underscores the company’s strong commitment to delivering shareholder value.
Investors looking to reap big benefits from the AI revolution next year should not hesitate to buy NVDA stock. The stock currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Additionally, Wall Street’s average price target on NVDA suggests an upside of 30.3% from its recent closing price of $134.70, with a high target of $220, indicating a potential upside of 63.3% . This indicates that if the stock price trend upwards as expected, current shareholders holding the stock could potentially make significant profits in the short term.
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