Nvidia stock (NVDA -1.68%) It has doubled in each of the past two years. The stock has soared 239% in 2023 and is up 170% since the beginning of the year at the time of writing. Investors expect NVIDIA to report even stronger growth in 2025 as $1 trillion worth of data center infrastructure migrates to more advanced hardware for artificial intelligence (AI).
You might be tempted to buy the stock in hopes of another year of impressive profits. But let’s take a look at how Nvidia’s data center business is faring as we head into the new year, and what investors should expect from the stock.
Revenue growth is starting to slow
Wall Street’s consensus forecast is for revenue to rise 51% for the next fiscal year (ending January 2026). That’s impressive growth for a company whose sales are expected to be $129 billion this year.
Nvidia’s launch of Blackwell is scheduled to begin in earnest in 2025 and is a wild card that could lead to an unexpected upside. Blackwell is a complete computing platform that leverages multiple chips to deliver breakthrough performance for generative AI, quantum computing, and other high-performance computing tasks.
“Demand for Blackwell has been incredible and we are rushing to expand supply to meet the incredible demand our customers are placing on us,” CFO Colette Kress said in the company’s fiscal 2025 third quarter forecast. This was stated at the financial results conference.
But this demand may already be reflected in analyst forecasts. The biggest headwind for Nvidia is that Blackwell’s sales are subject to very difficult growth comparisons. Revenue for the third fiscal year was up 94% year over year, but down from 122% in the second quarter and 262% in the first quarter.
Where will the inventory be one year from now?
Kress’ comments about near-term demand for Blackwell indicate that Nvidia is still well-positioned for incredible demand, even as revenue growth begins to slow. As AI models get bigger and smarter, they will require more powerful GPUs over time. But investors need to be aware of risks that could limit stock price gains next year.
In terms of competition, Advanced Micro Devices (AMD -0.17%) is also experiencing significant growth with graphics processing units (GPUs) in its Instinct datacenters. AMD’s data center division posted 122% year-over-year revenue growth last quarter, outpacing its larger rivals.
Still, this is not enough growth for AMD to gain significant market share. Nvidia has the most robust supply chain to meet demand. the The data center GPU business generated $30.8 billion in revenue last quarter, significantly outpacing AMD’s quarterly data center revenue of $3.5 billion.
The bigger risk for Nvidia investors could be slower growth and its impact on valuation. The stock has a price-to-earnings ratio of 54 times, which is in line with the stock’s trading history over the past five years. That said, it’s important to recognize that this premium valuation is likely based on investors’ bullish expectations for triple-digit growth. Those days may be over.
Wall Street analysts expect Nvidia’s profits to grow 50% next year, roughly in line with sales. If an investor decides to reduce the stock price to, say, 40x P/E by this time next year, the stock price would be $177 based on next year’s earnings forecast, implying an upside potential of 28%. And that P/E multiple still represents a large premium compared to the average stock price.
The P/E ratio could decline as Nvidia’s growth slows, which is why I won’t be buying the stock expecting monster returns again this year. Investors should only buy the stock as part of a long-term investment, as it is very likely that the stock will have a more modest performance in 2025.
John Ballard holds positions at Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
