Should investors buy Nvidia following its recent share price sell-off in hopes of further gains over the next 12 months?
NVIDIA (NVDA -4.00%) The company has been one of the market’s best-performing stocks over the past year, delivering investors an astounding 142% gain at the time of writing, but a closer look at the semiconductor giant’s recent share price movement suggests that the company’s incredible rise may have finally come to a halt.
Nvidia shares hit a 52-week high on June 20. But since then, the stock has fallen 22%. Concerns have been raised about Nvidia’s high valuation and whether it can maintain its phenomenal growth next year and beyond. Moreover, not all tech giants appear to be interested in acquiring Nvidia chips to train their artificial intelligence (AI) models.
For example, Apple recently revealed that it used tensor processing units (TPUs) from Alphabet’s Google division to train the large language models (LLMs) that underpin its Apple Intelligence suite of AI features. This could have been a significant contract for Nvidia, but it was awarded to AMD. Developments like this have been weighing on Nvidia’s stock price recently.
But is this huge share price drop an opportunity for savvy investors to buy into this popular AI stock in hopes that it will regain momentum and deliver healthy profits again next year? Let’s find out.
Demand for AI chips remains strong, which bodes well for Nvidia
Analysts estimate that Nvidia’s share of the market for graphics processing units (GPUs) in AI data centers is between 70% and 95%. This puts the company in a strong position to capitalize on healthy demand for AI accelerators in both the short and long term. For example, recent results from Nvidia peer Advanced Micro Devices showed that: (AMD 0.15%) This shows that the hot demand for AI chips is not going away.
AMD saw an astounding 115% year-over-year growth in data center revenue to $2.8 billion in the second quarter of 2024. The company noted that this impressive increase was “primarily driven by a surge in shipments of AMD Instinct GPUs, our AI accelerators being deployed in data centers.”
It’s also worth noting that AMD sold just over $1 billion of MI300 AI GPUs in the last quarter. AMD now expects to sell $4.5 billion in data center GPUs in 2024, up from its previous outlook of $4 billion. This is also a big increase from AMD’s $3.5 billion data center GPU forecast released in January of this year. This Nvidia competitor is currently enjoying great success.
But Nvidia’s growth doesn’t stop there. Nvidia is a much bigger player in the datacenter GPU market than AMD, and it’s growing at a much faster pace. Nvidia sold $22.6 billion worth of datacenter chips in the first quarter of fiscal 2025, with revenue from the segment growing an astounding 427% year-over-year.
Nvidia’s phenomenal growth in the data center is due to two reasons. First, the company has a dominant position in the market. Second, the size of the AI chip market is growing at a robust 68% annually, according to market research firm TechNavio. The firm predicts that the AI chip market could grow by $390 billion between 2023 and 2028, so it’s no wonder that Nvidia’s business will continue to grow at a healthy pace.
Investors can expect solid gains over the next year
UBS analyst Timothy Arcuri predicts that Nvidia could generate $204 billion in revenue in calendar year 2025, which overlaps with most of fiscal 2026. By comparison, Nvidia is expected to make $120 billion in revenue in its current fiscal year, 2025. That means Arcuri’s projections suggest Nvidia’s revenue will grow by 70% in the next fiscal year.
Arcuri’s estimate is based on strong demand for Nvidia’s new Blackwell generation of AI chips. The analyst noted that data center operators are ordering large quantities of liquid-cooled server racks that feature Nvidia’s Blackwell chips. As a result, Nvidia could ship 69,000 Blackwell-based systems next year, generating $9 billion in revenue for every 5,000 systems it ships.
Additionally, Nvidia could generate earnings of $4.95 per share in 2025, again well above the consensus estimate of $3.74 per share for fiscal 2026 (which corresponds to the 11th month of calendar year 2025). Assuming Nvidia’s fiscal 2026 earnings reach the consensus estimate of $3.74 per share, the company’s stock could rise to $161 next year based on a forward earnings multiple of 43 (a discount to the U.S. technology sector’s earnings multiple of 45).
That would be a 50% increase from current levels. But if Nvidia’s earnings get closer to Arcuri’s forecast, investors could see further upside from this semiconductor stock. As such, smart investors may consider taking advantage of Nvidia’s share price decline to buy more shares, as the company’s recent weakness may be temporary thanks to the company’s huge AI opportunity.
Suzanne Frey, an executive at Alphabet, serves on The Motley Fool’s board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Advanced Micro Devices, Alphabet, Apple, and Nvidia. The Motley Fool has a disclosure policy.
