10 things you need to know about Nvidia before you buy or sell

Nvidia (NVDA 3.96%) has been one of the hottest stocks on the planet lately. The stock is up 2,500% over the past 5 years – and just this year it’s up more than 130%. This is due to the company’s dominance in the high-growth artificial intelligence (AI) chip market. Nvidia’s sales of chips and other AI products and services have helped earnings climb into the billions.

And that momentum may be just beginning, given the predictions of AI growth. The AI ​​market is expected to expand from about $200 billion today to $1 trillion by the end of the decade. As a major player in the space, Nvidia could continue to generate explosive earnings. That said, some investors have been concerned about increased competition in the market and how it could affect Nvidia’s pricing power.

Before you decide to buy or sell this profile stock, here are 10 things you need to know.

Image source: Getty Images.

1. Blackwell launch is on track

Nvidia’s next big release is the Blackwell architecture and its most powerful chip yet — a potentially game-changing platform for the company and its customers. The company recently said the launch is on track, quashing rumors of delays. (Nvidia just implemented a tweak to improve production yield.) The Blackwell production ramp is slated to begin in the fourth quarter, and the company even predicts “several billion dollars” in Blackwell revenue during that time.

2. Hopper remains a big growth engine

Blackwell is coming, but the earlier Hopper architecture isn’t going away. Although Blackwell is more powerful, Hopper remains state-of-the-art, and customers eager to advance their AI projects flock to it. Nvidia’s expectation of 80% year-over-year revenue growth next quarter is driven by demand for Hopper, meaning the platform continues to be a key revenue driver for the company.

3. Nvidia AI Enterprise is on its way to a major milestone

Enterprise software will be a significant driver of growth, the company has said in the past, and now Nvidia’s efforts in this area are paying off. Nvidia AI Enterprise, an “operating system” for enterprise AI projects, streamlines the development of generative AI applications. And Nvidia expects its software to end the year on a $2 billion annual revenue run rate, “contributing notably to growth,” the company says.

4. Growth in China may remain a challenge

Since the US imposed a ban on chip exports to China, Nvidia has seen revenue from the country drop. The company has developed other chips specifically for China that meet US export requirements, and in its most recent earnings report, Nvidia said China was a “significant contributor” to data center revenue. However, China brings in far less revenue than before export controls, and the company expects the market to remain highly competitive.

5. More Blackwells are just ahead

Nvidia said that “more Blackwells” are on the way after the upcoming Blackwell launch, which means that this top-tech company will continue to innovate. Nvidia is committed to updating its graphics processing units (GPUs) annually. This plan makes me confident that the company maintains its lead and the new releases provide catalysts for the stock’s performance.

6. Gaming still contributes to growth

The data center business may have become Nvidia’s biggest, taking the reins of gaming, but that doesn’t mean the gaming boom is over. The segment is still a key contributor, and in the most recent quarter, saw a 16% increase to over $2.8 billion. Today, the GeForce NOW library boasts a catalog of over 2,000 titles for the largest collection of any cloud gaming provider.

7. The threat from rivals can be limited

Yes, Nvidia faces competition from others such as Advanced microdevices and Intel. But I don’t expect this to hurt Nvidia — for two reasons. First, the market demand is so high that there is room for more participants. And secondly, Nvidia’s focus on innovation, as I mentioned above, and the fact that it already it is The market leader means it will likely continue to stay at the top when it comes to chip technology — and that will make the company difficult to dismantle.

8. Two key metrics are on the rise

Nvidia’s outstanding record in terms of return on invested capital and free cash flow is a big plus. This shows that he invests wisely and thus benefits his investments over time and is very profitable. As we can see in the chart below, even before the AI ​​boom, Nvidia has been steadily increasing these values, showing wise management throughout the business.

NVDA data on return on capital invested by YCharts.

9. Signs of trust

Nvidia recently completed a 10-for-1 stock split, a move to lower its share price after its huge gain so a wider range of investors could get into the stock. The company’s board of directors also approved a $50 billion share repurchase authorization, adding to the remaining $7.5 billion already authorized. These two moves show confidence that stocks still have plenty of room to run.

10. A reasonable valuation

Nvidia isn’t the cheapest stock around. But given the positives I mention here (and the fact that they outweigh the negative), the stock looks pretty reasonable today at 40 times forward earnings estimates. And that’s down from 50 times earlier this year. All of this means that Nvidia, even after its enormous gains, still looks like a solid AI winner to buy and hold.