Is it too late to buy artificial intelligence (AI) leader Nvidia in 2025? There is a mountain of evidence that provides a very clear answer.

Much has been said about the growing demand for artificial intelligence (AI) and the technology’s potential to revolutionize the world. Nvidia (NVDA -3.00%) is one of the obvious beneficiaries of this trend. The company’s graphics processing units (GPUs) have cornered the market by providing the computing power needed to power the technology.

However, Nvidia’s stock price has stalled over the past six months. Some investors worry the gravy train could reach a dead end and demand for the company’s AI chips will slump. But a growing mountain of evidence provides a clear answer to the question, “Is it too late to buy NVIDIA stock?”

Image source: Getty Images.

Data centers have their day in the sun

The biggest factor behind Nvidia’s rapid growth over the past two years is the unparalleled performance of its GPUs. Although these chips were originally developed to create lifelike images in video games, they are equally adept at providing the computational power needed to support generative AI. The sheer amount of data required to train these AI models is daunting, and few companies have the resources to develop these top-of-the-line models from scratch. And nearly all of them are Nvidia customers.

Although final totals for 2024 have not yet been announced, Nvidia dominates the market for data center GPUs used for AI. As in 2022, Nvidia has a 98% market share in 2023, and its leadership position in this space is not expected to change anytime soon.

Demand continues to outstrip supply, even as the company has directed its partners to ramp up production of high-end AI processors. There is evidence to suggest that unprecedented demand is here to stay.

Just last week, Microsoft President Brad Smith said that in fiscal year 2025 (starting July 1), the company plans to “build out AI-enabled data centers to train AI models and deploy AI and cloud-based technologies.” We plan to invest $80 billion.” application. ”

He was clear about why he thought this spending was necessary. “Since the invention of electricity, the United States has not had the opportunities it has today to take advantage of new technologies. … In many ways, artificial intelligence is the power of our time, and over the next four years will transform the U.S. economy.” We can lay the foundation for success in the next quarter century. ”

For context, Microsoft spent nearly $56 billion in capital expenditures (Capex) last year, a 44% increase in spending. This shows that investment to support AI is increasing, not slowing down.

Microsoft isn’t the only big tech company investing heavily in AI. Alphabet is expected to spend about $51 billion on capital expenditures in its 2024 financial year, and the company plans to increase spending next year. At the third-quarter earnings conference, CEO Sundar Pichai said, “To realize the AI ​​opportunity… we need meaningful capital investment,” and that “capital investment will increase significantly as we move toward 2025.” said.

Amazon also expects to spend $75 billion in capital spending in 2024, and even more in 2025, CEO Andy Jassy said. He also said that a large portion of the money will go toward supporting the company’s cloud arm, Amazon Web Services (AWS), and that the spending is “really driven by generative AI.”

Although Meta Platforms is not a cloud provider, it has invested heavily in developing cutting-edge Llama AI models. The company plans to spend about $39 billion in 2024, and Chief Financial Officer Susan Lee said, “We expect continued significant increases in capital spending in 2025.” She previously said the spending was “to support AI research and product development efforts.”

The company’s customer list is bright

Based on comments from these tech executives, it’s clear that spending on AI is on the rise. The bulk of this spending will go to the data centers and servers needed to support AI, with the primary beneficiary being Nvidia, which provides the chips that power the technology.

Nvidia hasn’t revealed exactly who its biggest customers are, but Wall Street is doing some detective work. Analysts from Bloomberg and Barclays Research concluded that NVIDIA’s four largest customers, accounting for 40% of its revenue, are:

Microsoft: 15% Metaplatform: 13% Amazon: 6.2% Alphabet: 5.8%

Executives at these companies have been clear about their plans to increase capital spending, with much of it going to supporting cloud computing, particularly AI. As the unparalleled leader in the data center GPU space, Nvidia stands to benefit from all this spending.

Nvidia’s GB200 Grace Blackwell superchip. Image source: Nvidia.

Is it already too late?

Nvidia’s growth ultimately slowed after posting five consecutive quarters of triple-digit year-over-year growth, but it’s still impressive. During the third quarter of fiscal 2025 (ending October 27), Nvidia generated record revenue of $35 billion, up 94% year-over-year and 17% sequentially. At the same time, adjusted earnings per share (EPS) was $0.81, an increase of 103%.

Although the days of triple-digit growth are probably behind us, many believe NVIDIA still has a long way to go. The company’s Hopper AI processor has been a huge success, but its recently released Blackwell chip is expected to generate even more sales. The processor is in full production and began shipping late last quarter, but despite being released recently, it is believed to be sold out over the next 12 months.

Mounting evidence suggests NVIDIA has a long way to go as AI adoption gains momentum. Moreover, even after gaining more than 850% over the past two years (as of this writing), NVIDIA stock remains attractively priced, selling for approximately 32 times next year’s expected sales. Masu.

Given its industry-leading technology, growing demand for its processors, and reasonable valuation, I don’t think it’s too late to acquire Nvidia, especially given its growing adoption of AI. Masu.