3 Reasons to Buy Nvidia Stock Before August 28th

Did you know that one company was responsible for more than 30% of the S&P 500’s rise in the first half of this year? Take a wild guess at which company you think it is. Yes indeed it is Nvidia (NASDAQ: NVDA). The chip maker is the wave that lifts all boats.

It makes sense. Nvidia technology is driving the artificial intelligence (AI) boom, enabling a technological revolution that some believe could be as transformative as the Internet itself. Its extremely powerful chips are a hot commodity, and that puts it at ease. With the rest of the tech bigs lining up at the door to get their hands on Nvidia’s latest, the company has tripled its revenue year-over-year over the past three quarters.

Now, all eyes are on the company’s next earnings report, which will be released on August 28. Expectations are high. So with the launch fast approaching, is it a good time to get on board the Nvidia train? Here are three reasons why the stock still looks strong.

1. Capex in the rest of Silicon Valley is accelerating

There was some trepidation in tech as a whole as the latest round of earnings reports began. While the numbers generally showed positive growth, they were below what many investors had hoped for, with the notable exception of Meta experiencing monstrous revenue growth. A major concern has been the increase in capital expenditure (capex) across much of Silicon Valley, particularly from companies such as Alphabet and Microsoft who build and operate the huge data centers largely responsible for the Internet as we know it.

These cloud operators have spent huge sums of money in recent years to upgrade their data centers to be able to train and run generative AI systems, and their spending is not slowing down. There’s an arms race going on in Silicon Valley and no one wants to be left behind. Look at the investment growth for Alphabet and Microsoft over the past three years. Notice the big jump right when AI took over the news cycle in 2023?

This investment growth continues and even accelerates. Alphabet has spent about $32 billion on capital expenditures in 2023. It is on track to spend about $50 billion this year. This is great news for Nvidia, which is on the vendor side of many of these infrastructure orders. Yes, not all of that revenue is pouring into Nvidia’s coffers, but a sizable portion is. There will continue to be a need to upgrade and expand these data centers for some time, and Nvidia will be there to meet that need.

2. Nvidia has a new revenue stream, and it could be substantial

the hype around Nvidia’s technology is almost entirely focused on its chips. While that will continue to be the company’s bread and butter, Nvidia is expanding its product offering in a critical category: networking. In simple terms, data must travel. Traditionally, data centers used ethernet-based networks to handle this, but AI can create too much data too quickly for legacy systems to handle. There are other technologies that can be used instead of ethernet, but retrofitting data centers with it is extremely expensive.

That’s where Spectrum-X comes in, Nvidia’s new ethernet-based networking platform for AI. The single data ports can handle data rates of up to 800 gigabits per second with low latency and are still compatible with slower Ethernet standards. This allows certain components to be upgraded without completely overhauling the data center’s network infrastructure at the same time.

Now, Spectrum-X is not the only solution like this on the market. Broadcom already has a similar offering, for example, but I think Nvidia is likely to gain significant market share here because its solution will “play nice” with Nivida chips. The components will be optimized to perform at full capacity when used together. Nvidia is building an ecosystem that will reward customers for keeping their products. This could easily be a multi-billion dollar revenue stream within a year or two.

3. Nvidia has announced delays on its latest chip, but I doubt it will move the needle

Nividia has committed to updating its flagship AI chip every year. It’s a pretty tall order and leaves little room for error. The company seems to have already slipped.

After a flaw was discovered in its Blackwell AI accelerator chips, the company announced that there would be a delay in their release. I think this is unlikely to have a significant impact on the company’s bottom line. Its Hopper chips, which the Blackwells are intended to replace, are capable of meeting the current needs of its hyperscaler customers. Their sales will likely offset any potential loss from Blackwell’s delayed launch.

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Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a board member of The Motley Fool. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends Broadcom and recommends the following options: long $395 January 2026 Microsoft calls and short $405 January 2026 Microsoft calls. The Motley Fool has a disclosure policy.

3 Reasons to Buy Nvidia Stock Before August 28th was originally published by The Motley Fool