Nvidia: The more it falls, the more I’ll buy (NASDAQ:NVDA)

Quarterly results of NVIDIA Corporation (NASDAQ:NVDA) Last week wasn’t as spectacular as investors have become accustomed to over the past year, but it was still pretty good.

The chip company said that continues to see strong demand for its data center GPUs, which have been at the center of enthusiasm for Nvidia over the past year or so.

Although Nvidia enjoyed substantial growth in the second quarter, the market was somewhat disappointed by the company’s guidance. That forecast actually sent Nvidia stock down 6.9% the day after earnings, suggesting investors now have an opportunity to double down on Nvidia.

The chip company has a strong ace up its sleeve with its new Blackwell-themed data center GPU, and I think investors got a little too bullish on Nvidia last week.

Rating history

My piece “Nvidia Stock Is Still A Gift At $130” got considerable attention from readers because my thoughts on the chip company were published right at a time when the stock was peaking. We pointed to the growth in GPU clusters as an opportunity for Nvidia to grow its sales going forward, and the chip company is on track to launch its Blackwell GPUs later this year. The outlook for 3Q25 was also better than I think the chip company is getting credit for.

Additionally, Nvidia’s gross margins were flat last quarter, suggesting the company isn’t losing any of its pricing power in the market.

Nvidia 2Q25 results, stable gross margins and the Blackwell catalyst

Nvidia’s sales soared 122% year-over-year to a record $30.04 billion in 2Q25, as well as 15% QoQ growth, as customers continued to chase GPUs for data centers of Nvidia.

Nvidia also reported strength in margins, with second quarter gross margins reported at 75.1% in Q225. Compared to 2Q24, Nvidia enjoyed a healthy 5 percentage point increase in its gross margins, and this increase is primarily due to market demand for high-priced H100 GPUs.

Nvidia obviously still sees favorable supply and demand dynamics in its core market, data centers. Over the past year, Nvidia has benefited from skyrocketing demand for GPUs in large data centers, which has driven its sales closer and closer to this particular segment, the data center.

In 2Q25, $26.3 billion in sales were made in the data center segment, which equates to a sales percentage of 87%. Last year and the year before, these sales percentages were 76% (2Q24) and 57% (2Q23).

With sales shifting more towards data centers, Nvidia is well-positioned to benefit from the market introduction of Nvidia’s newest GPU, the Blackwell, due to ship in Q225. Blackwell is a next-generation GPU that specifically targets AI models that are applied in large-scale data centers.

Nvidia’s newest GPU, according to Nvidia, aims to offer “25 times lower cost and power consumption than its predecessor.” Based on reports from Extremetech, Blackwell GPUs could cost as much as $70,000 per super-chip, indicating that increased shipments (after 4Q25) could have a positive gross margin effect on Nvidia. According to Tom’s Hardware, high-end, fully custom server racks could cost $3 million or more, providing substantial sales for Nvidia.

Current H100 GPUs cost about $30,000 per unit, so a substantial price increase for the latest data center GPU in 4Q25 makes sense. I think the selling opportunity here is not fully understood by the market as investors seemed to be focusing more on Nvidia’s latest sales results. The Blackwell GPU will be available to customers by the end of the year, at which point investors should expect a denser and more upbeat news stream from Nvidia.

Given that investors seem too short-term oriented, I think the current pullback is a solid opportunity to build a position in the chip company as Blackwell’s sales data is reported as part of Nvidia’s earnings releases.

My thinking behind buying the patch here mainly boils down to 3 considerations, two of which I’ve already discussed. First, the availability of the Blackwell GPU could lead to an acceleration in sales. Some companies are holding off on buying H100 GPUs while waiting for the most efficient Blackwell, which could trigger a new wave of GPU upgrades towards the end of the year.

Second, with higher-priced GPUs set to hit shelves later this year, I anticipate gross margin expansion. Third, while sales may accelerate and margins increase, investors may be underestimating Nvidia’s profit which, in my view, will remain phenomenal.

Nvidia produced profits of $16.6 billion in the 225 quarter, up 168% from last year. Over the past year, Nvidia has added $10.4 billion in pure profits to its business, almost entirely due to data center GPUs. I think with Blackwell starting to ship later this year, Nvidia has another ace up its sleeve in terms of increasing profit growth.

Does the forecast disappoint or not?

Nvidia estimated sales of $32.5 billion (plus or minus 2%) and GAAP gross margins of 74.4% (plus or minus 50 basis points). The outlook was met with disappointment as the market did not see an acceleration in ToT sales.

However, Nvidia’s forecast still implies a fairly substantial 8% increase in sales compared to 2Q25, while the chip company anticipates defending non-GAAP gross margins around 75%.

In my view, the gross margin trend is very resilient, and Nvidia is in all likelihood poised to see a sales acceleration toward the end of the year as its Blackwell GPUs hit shelves.

Nvidia may not be that expensive

The market is modeling $3.59 per share in earnings for Nvidia’s earnings next year, which reflects our expected profit growth rate of 41%. But with the market still currently digesting the company’s 2Q25 earnings, there’s reason to believe we’ll see at least some estimate corrections ahead.

As I said above, the market did not respond kindly to Nvidia’s 2Q25 earnings, which suggests to me that there is a potential buying opportunity to capitalize on before the news flow can be expected to improve before Blackwell starts shipping.

Based on Nvidia’s current share price of $119.24, Nvidia stock is selling at 33 times forward earnings. That doesn’t strike me as a particularly rich sales multiple when you consider that Nvidia’s sales skyrocketed 122% last quarter and that the overall outlook is quite favorable.

Nvidia’s Blackwell architecture is poised to ramp up shipping soon, and management said it expects a positive sales contribution of several billion dollars in the 425th quarter.

Advanced Micro Devices, Inc. (AMD) it’s selling at a 30x multiple which isn’t that far off from Nvidia.

That said, however, AMD is expected to grow its profits by 60% next year, mainly because the chip company brought AMD Instinct™ MI300X accelerators to market for which sales forecasts are favorable. AMD also enjoyed an increase in data center sales last quarter. Given that Advanced Micro Devices and Nvidia sell for fairly similar earnings multiples, my obvious choice to invest in would be Nvidia, especially because of the anticipated Blackwell ramp.

Why the investment thesis could disappoint

Some doubts have crept into the market about whether or not the staggering increase in AI spending will have a positive ROI for businesses.

Companies like Alphabet, Meta Platforms, Amazon or Elon Musk’s xAI are spending billions on GPUs, but so far have very little to show for it. I think the risk of missing the Blackwell opportunity is currently the biggest risk for investors.

My conclusion

The market was clearly expecting more from Nvidia last week, though I’m not exactly sure what: Nvidia reported sales above guidance and gross margins remained in the 75% range and showed no signs of abating. Even substantial sales growth, strong margins and a robust outlook for 3Q25 failed to sway investors last week, a clear sign that investors are too picky.

That said, though, Nvidia has a strong earnings catalyst with the Blackwell GPU, and I think investors should strongly consider buying the dip after the earnings.

If Nvidia’s 2Q25 results showed anything, it was that Nvidia’s business continues to fire on all cylinders, and investors have every reason to remain bullish on Blackwell’s ace up Nvidia’s sleeve.