Artificial intelligence (AI) is not just a year-end theme. Investors should not avoid this sector just because it has had a strong two-year run, as there is still potential for strong gains in this sector. One of the leading stocks for AI investing is Nvidia (NVDA 3.10%). One of the key things that sets Nvidia apart from other AI investments is that it earns huge returns from all of its AI investments from big tech companies.
Hans Mosesmann of Rosenblatt Securities has set a high price target for NVIDIA of $220 per share. That means there is room for an increase of 67% over the next year. That’s a big gain for a stock of Nvidia’s size, but it’s entirely possible if certain things happen.
Nvidia’s GPUs are best in class
As mentioned above, one of the key things that sets Nvidia apart from other AI stocks is that it actually makes money with AI. AI hyperscalers are pouring tons of money into building out computing power to train AI models in hopes that these investments will eventually pay off, but Nvidia is I’m getting the department.
The company’s graphics processing units (GPUs) and the software packages that power them are best-in-class, making it the go-to choice for companies looking to train AI models. GPUs have an important feature called parallel computing, which allows them to process multiple calculations at the same time. Additionally, GPUs can be grouped into clusters to double this effect. With some of the largest AI companies building servers with thousands of GPUs, it’s clear how quickly AI models can be trained.
However, that only applies to older generation models. While Nvidia’s traditional Hopper architecture GPUs offered superior performance, the next-generation Blackwell GPU architecture delivers significant performance improvements. Blackwell can train AI models four times faster than previous generations, making it an important upgrade for those seeking the highest possible computing performance.
Another important factor is that GPUs don’t have the longest lifespan in data centers. Since it is used almost constantly, it wears out quickly. According to the nameless alphabet (NASDAQ:GOOG) (NASDAQ:Google) According to data center specialists, this can extend the lifespan of GPUs to 1 to 3 years. As a result, many GPUs purchased in the past few years may need to be replaced. Given the fact that the demand for AI is still growing and these companies continue to increase their computing power, it’s clear how Nvidia can continue to grow.
But Nvidia is not without its challenges.
Competition is intensifying over how to create and utilize AI models
There are some headwinds emerging that could cause some problems for Nvidia in 2025, further pushing the use of CPUs for AI inference and custom AI accelerators. Nvidia’s GPUs are considered some of the best available, but they consume more power and aren’t as efficient as CPUs for simple tasks like AI inference. Since inference is done when a pre-trained model is used, it makes no sense to use powerful, energy-intensive GPUs when cheaper, more efficient CPUs are available.
Additionally, most of Nvidia’s largest customers are working on developing custom AI training accelerators. These chips allow you to bypass Nvidia because you don’t have to pay a fee to a middleman to access the computing power provided by GPUs. However, to make optimal use of these custom AI accelerators, your workloads must be configured in a specific way. If a general AI model is being developed, or if the developer is just testing a few training methods, these custom accelerators may not be an efficient way to train an AI model. .
While these are clear headwinds for Nvidia, I believe they are relatively minor and only impact a portion of Nvidia’s business.
Nvidia’s stock price is reasonably priced to match its growth.
So how can Nvidia’s stock price soar 67% in 2025? Simple. The results were as expected and gave a solid outlook for next year.
Nvidia currently trades at a price-to-earnings ratio of 52 times, near its lowest level in the past two years.
NVDA PE Ratio Data by YCharts
As a result, I don’t think investors can call Nvidia “overvalued.” Especially when other tech companies like Apple and Amazon trade at P/E ratios of 38x and 47x, respectively, despite growing at a much slower pace.
Nvidia’s sales growth is expected to be 52% in fiscal year 2026 (ending January 2026), so if profit margins are maintained and valuation increases slightly, Nvidia’s stock price will rise to the 67% range. I will do it. As a final kicker, we need signs that 2026 (NVIDIA’s 2027) is also going to be strong. Otherwise, stocks could plummet in preparation for this year’s downturn.
We’re at a stage where Nvidia’s expectations don’t outweigh its current business. Some people are selling NVIDIA stock to take profits, but there is still plenty of upside and I think NVIDIA is a great buy after the recent decline.
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Keithen Drury has held positions at Alphabet, Amazon, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy.
