Is Nvidia stock a buy?

Nvidia’s (NVDA 3.08%) The stock has been a big winner in each of the past two years. After soaring more than 238% in 2023, the stock is up about 164% this year at the time of writing. These two major consecutive profits made the company one of the largest in the world.

The question is whether the stock can enter the market with significant three-peat profits in 2025. Interestingly, this stock has produced a return of 30% or more for three consecutive years and a return of 50% or more for three consecutive years twice in the past four times. Although it has never achieved a return of more than 30% for four consecutive years, there was only one period from 2013 to 2017 when the stock price rose more than 25% for five consecutive years.

Let’s take a look at why I think Nvidia can do even better in 2025.

Extraordinary demand for AI chips

Nvidia’s investments will center around spending on artificial intelligence (AI) infrastructure. The graphics processing units (GPUs) the company designs are the backbone of building AI infrastructure. GPUs can perform many calculations simultaneously, making them ideal for training large language models (LLMs) and performing AI inference.

On the other hand, as AI models become more sophisticated, they require exponentially more computing power, or GPUs, to evolve. For example, Amazon’s Llama 4 LLM and xAI’s Grok 3 model were both trained on 10 times as many GPUs as their predecessors trained on.

Demand for GPUs is driven not only by large hyperscale technology companies (Microsoft, Alphabet, Amazon, Meta Platforms, etc.), but also by well-funded companies such as OpenAI and Elon Musk-backed xAI. It is driven by AI startups. These companies are all currently competing to create the best and most powerful AI models, leading to what NVIDIA calls “insane” demand for the latest generation of Blackwell GPUs.

But growth is not expected to stop, and Nvidia’s biggest customers have generally indicated plans to spend more money building out data centers to power their AI ambitions. Nvidia customers such as Meta Platforms and Alphabet say the biggest risk to AI infrastructure is underinvestment, and they are looking to take advantage of what they see as a generational opportunity. Meanwhile, Oracle said it expects strong growth in AI infrastructure to continue over the next five to 10 years.

Image source: Getty Images.

wide moat

Nvidia is not the only company that makes GPUs, but it has been able to build a wide moat thanks in large part to its CUDA software platform. GPUs were originally developed to speed up graphics rendering (hence the name) in applications such as video games. But in an effort to expand the use cases for these chips, Nvidia has created a free software program that allows developers to program the chips for other tasks.

It took time, but this made CUDA the standard, developers learned how to program GPUs for a variety of tasks, and it built the wide moat it has today. On the other hand, it was probably the use of GPUs in crypto mining that really helped lay the foundation for Nvidia’s current AI success today, as it demonstrated the capabilities of GPUs in high-performance computing.

Nvidia didn’t sit still after the initial CUDA development. And it’s been several years since we built domain-specific microservices and libraries on top of CUDA (called CUDA X) to better optimize for AI. Meanwhile, the company has accelerated its GPU development cycle to once a year to stay at the forefront of GPU technology.

The company’s biggest challenge right now appears to come from custom AI chips, like the ones Broadcom is helping develop for its customers. These are custom chips designed for very specific tasks, making them more efficient. However, designing and manufacturing custom chips is time-consuming and, like most custom products, expensive. In the global race for AI, Nvidia’s chips are more available, cheaper, and feature a host of AI-specific microservices and libraries through CUDA X.

So while custom AI chips will likely continue to gain some market share, Nvidia will likely remain the king of AI chips for the foreseeable future.

cheap evaluation

The final reason I think Nvidia is poised to do even better in 2025 is its valuation. Despite its strong gains over the past two years, the stock trades at a forward price-to-earnings ratio (P/E) of approximately 30 times and a price-to-earnings ratio (PEG) of approximately 30 times based on analyst estimates for 2025. Masu. Approximately 0.95. A PEG ratio below 1 is typically considered undervalued, but growth stocks often have a PEG ratio well above 1.

Data by YCharts.

That’s an attractive valuation for a company whose revenue just grew 94% year over year last quarter and is expected to grow 50% in 2025. AI appears to be still in its early stages, and the company’s wide open market makes this stock a good buy heading into 2025.