Another week, another new all-time high for Nvidia(NASDAQ: NVDA). The stock climbed to record-setting territory again on Thursday after setting a new watermark on Wednesday. Over the past couple of years, the stock has regularly hit new heights, fueled by the roaring adoption of artificial intelligence (AI). In 2024 alone, Nvidia is up 200% (as of this writing) and appears poised to vault higher.
After a rally of that magnitude, some investors are understandably wary, concerned about the potential for a slowdown in the adoption of AI and Nvidia’s lofty valuation. Let’s take a look at the general state of AI, Nvidia’s place in the vast scheme of things, and what Wall Street is saying about the company’s potential.
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Investors looking to understand the state of generative AI adoption need look no further than the cloud infrastructure providers that are the biggest purveyors of AI to the masses. Amazon, Microsoft, and Alphabet are the big three cloud providers, and all three reported their calendar third-quarter results during the last week of October.
Executives from each of the companies vowed to continue spending heavily on AI, with most of those capital expenditures going toward the servers and data centers needed to further their AI efforts. Meta Platforms, which has used its treasure trove of customer data to fuel its Llama AI model, also plans to continue ramping spending to support its AI development.
Investors can also review the results of other notable companies at the forefront of AI technology. Just last week, Palantir Technologies(NYSE: PLTR) delivered third-quarter results that sailed past expectations, driven by “unrelenting AI demand,” according to CEO Alex Karp. Revenue grew 30% year over year, driving earnings per share (EPS) up 100%.
The results were fueled by demand for its Artificial Intelligence Platform (AIP), the flagship product of its commercial AI segment. U.S. commercial revenue grew 54%, driven by a customer count that surged 77%. As a result, the segment’s remaining deal value jumped 73%.
Taiwan Semiconductor Manufacturing(NYSE: TSM) is a chip foundry and the leading producer of high-end chips used for AI. The company also reported results, adding to the growing mound of evidence that demand for AI is alive and well. Revenue grew 39% year over year, while EPS surged 54%. The company cited strong “AI-related demand” as fueling the results.
Taken together, big tech’s heavy capital expenditure spending and the results by Palantir and Taiwan Semiconductor leave little doubt that demand for AI continues to be strong.
Lest there be any doubt, without Nvidia’s graphics processing units (GPUs) to power the technology, AI — at least as we know it today — likely wouldn’t exist. The company pioneered parallel processing, or the ability to run a magnitude of mathematical calculations by breaking up massive amounts of data into smaller, more manageable chunks. This technology gave Nvidia an edge that the company has never ceded.
While GPUs were originally designed to make images in video games more realistic, parallel processing turned out to be equally adept at running computationally intensive jobs like AI. As a result, Nvidia has become the gold standard in the cloud and in data centers, where much of AI processing takes place.
Nvidia captured a dominant 98% share of the data center GPU market in both 2022 and 2023, according to semiconductor analyst firm TechInsights. Given the company’s relentless pace of innovation, it’s unlikely that it has ceded much of that share this year.
This dominance has fueled the company’s financial results. For its fiscal 2025 second quarter (ended Jul. 28), Nvidia generated record revenue that soared 122% year over year to $30 billion. The results were driven by record data center revenue that jumped 154% to $26.3 billion. Earnings also surged, resulting in diluted EPS that soared 168% to $0.67.
Two elements in the report made investors skittish. The first issue was a gross margin of 75.1%, down from 78.4% in Q1. Given the latter number was an all-time high, investors shouldn’t be too concerned. Management chalked up the issue to product mix and inventory provisions related to the upcoming release of its Blackwell AI processors.
The second issue was the company’s forecast for revenue growth of 79%, a clear deceleration from the triple-digit growth Nvidia has delivered for five consecutive quarters. Veteran investors will recognize that tough comps will eventually catch up with the company, as is the case here. That said, 79% growth is still enviable.
Image source: Getty Images.
Analysts on Wall Street rarely agree on anything, so when they are in agreement, it’s noteworthy. Such is the case with Nvidia, which still boasts a buy rating. The bullish sentiment is nearly unanimous: Of the 64 analysts who issued an opinion in October, 92% rated the stock a buy or strong buy, and none recommended selling. With so many disparate opinions, it’s unusual for Wall Street to reach a near-universal consensus like that.
However, given Nvidia’s ongoing series of blockbuster financial results, perhaps it isn’t that surprising after all. Rosenblatt analyst Hans Mosesmann is the self-professed biggest Nvidia bull on Wall Street. He maintains a buy rating and Street-high price target of $200 on Nvidia, which represents additional upside of 37% compared to Wednesday’s closing price — even after its record-setting run.
While some investors were concerned about Nvidia’s waning gross margins, Mosesmann is undeterred. He believes the issue results from the company’s rapid product development cadence, saying it’s a “high-class problem.” He went on to point to the continuing strength of Nvidia’s Hopper architecture while suggesting the company’s new AI-centric Blackwell chip will be “ramping hard” in the fiscal 2025 fourth quarter, which ends in January.
The most consistent question from investors is about Nvidia’s valuation. Indeed, the stock is currently selling for 70 times earnings, so their apprehension is understandable. Here’s the thing: Analysts’ consensus estimates for Nvidia’s fiscal 2026, which begins in January, are forecasting EPS of $4.06. That means the stock is currently selling for just 37 times forward earnings.
While that’s a premium to the overall market, it’s a small price to pay for an industry leader with strong secular tailwinds and an impressive track record of execution. That’s why Nvidia stock is still a buy, even after notching 200% gains so far this year.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
