Buying Nvidia at this price is a bet on the company’s future. Here, we take a look at NVIDIA’s growth prospects to determine whether the stock is worth investing in.
At this point, most investors interested in artificial intelligence (AI) are aware of Nvidia’s key role. (NVDA 0.97%) The AI accelerator chip played an active role. The resulting rapid growth propelled the company and its stock price to incredible heights. If you’re reading this, you’re probably wondering whether Nvidia’s AI tailwinds will continue and whether the stock, which has soared more than 800% since the beginning of 2023, is still a buy.
Yes, I’m fine with Nvidia and AI. With the stock currently trading at more than 50 times trailing 12-month P/E, buyers are looking to the future, not the past.
What does the future hold for Nvidia? We took a look at the company’s growth prospects to determine if the stock is a buy today.
A peek into Nvidia’s leadership in AI chips as the market grows significantly
Nvidia made a name for itself in the AI field thanks to its Hopper AI accelerator chip architecture. This has become the gold standard for training today’s AI models. According to industry estimates, the company owns 70% to 95% of the market. Owning this much market means that future growth depends on market expansion, as there is little room to gain additional business from competitors. On the one hand, this means Nvidia risks losing market share to other chip companies.
However, the market is growing so rapidly that some market share loss could realistically be offset. The global AI chip industry is estimated to be worth $123 billion in 2024 and could grow to $311 billion by 2029. NVIDIA’s trailing 12-month revenue was $113 billion, most of which came from sales of AI data centers. The company will lose market share and its revenue could double over the next five years.
The fundamental factors driving AI chip growth appear to be completely intact. AI requires more (and better) chips to train and operate more intelligent models, and as demand for AI services increases, additional compute is needed to create the capacity to meet that demand. requires resources.
Blackwell appears to be successful as it continues its AI momentum
Nvidia has begun the transition to Hopper’s successor, Blackwell. The new architecture offers significant advances in performance and, perhaps more importantly, efficiency. The chip has 208 billion transistors, up from 80 billion in the H100. The B200 can achieve up to 20 petaflops of computing power (such as computing horsepower) to the H100’s 4 petaflops of computing power.
B200 delivers 3x faster training of large models and 15x faster AI inference performance than H100. It is also 25 times more energy efficient, significantly lowering the cost of ownership. This is important because companies investing billions of dollars in AI data centers need to monetize these investments over time. Low operating costs are very helpful.
Blackwell is already showing signs of surging demand. A few months ago, Nvidia announced that it had sold out all of its 2025 Blackwell production capacity. The Blackwell supply shortage should also continue to impact continued Hopper sales. Because some companies may choose to build with Hopper chips rather than wait 12 or 12 months. For chips it is even longer.
Is Nvidia a buy?
Assuming that prominent companies building AI data centers, known as hyperscalers, continue to invest in AI infrastructure, Nvidia’s growth prospects look great.
Analysts predict that NVIDIA will grow its earnings by an average of 38% annually over the next three to five years. This makes sense within the broader growth forecast for the AI chip market. Until we see concrete evidence that competition is eating away at Nvidia’s business, there doesn’t seem to be much reason to doubt the growth forecast. So far, Blackwell appears to be a huge success.
I like to use the PEG ratio to weigh stock valuations and growth rates. Typically, I buy blue-chip stocks with a PEG ratio of 2.0 to 2.5, and Nvidia (1.4 PEG) is comfortably below that threshold. I’d rather buy NVIDIA here than a similarly priced retail stock like Costco, which has much slower growth.
So yes, Nvidia is a buy in my opinion.
Justin Pope has no position in any stocks mentioned. The Motley Fool has a position in and recommends Costco Wholesale and Nvidia. The Motley Fool has a disclosure policy.
