Nvidia Stock (NVDA) is still a long-term winner regardless of the noise

Artificial intelligence (AI) wonder Nvidia (NVDA), the world’s third-most valuable stock, saw its market capitalization drop significantly following its second-quarter earnings in late August. However, NVDA stock has again shown some strength, rising 5% in the past week. After temporarily breaking the $3 trillion mark earlier this year, investors are wondering what the future holds. My thesis remains the same — I’m bullish on NVDA stock as an investment due to its clear AI supremacy and exponential growth potential.

NVDA’s long-term AI-driven growth trajectory remains intact

It’s well known that NVDA is positioned for a long growth trajectory, with top clients like Microsoft ( MSFT ), Alphabet ( GOOGL ), Meta ( META ), and Amazon ( AMZN ) ramping up their AI efforts. However, beyond these top customers, Nvidia’s AI penetration is still growing across industries, increasing my optimism for NVDA stock. Enterprises across industries and geographies are eager to incorporate the benefits of AI into their operations. NVDA also continues to enter into collaborations with leading companies.

There’s a reason enterprises turn to NVDA for their AI ambitions. In addition to being the leader in GPU AI processors, NVDA offers a complete end-to-end AI infrastructure that boosts productivity. This is something that few, if any, of its global AI peers can offer.

NVDA remains a unique AI powerhouse with margin growth

Another reason for my optimism about NVDA is CEO Jensen Huang’s relentless focus. He is committed to transforming NVDA into a fully AI-driven data center covering all aspects of hardware and software under the NVDA brand.

This strategy is a key reason why NVDA can maintain premium prices for its products, helping to steadily increase its profit margins. However, critics argue that NVDA’s exceptional revenue and margin growth may not be sustainable. Some members of the investment community are concerned about a slowdown in revenue growth in the coming years.

For context, NVDA reported a whopping 217% growth in its data center revenue for fiscal 2024. While that growth is expected to moderate to around 130% in 2025, that remains an impressive triple-digit figure , especially given the solid FY2024 baseline for comparison. . Although lower than today’s pace, these are still remarkable growth forecasts for the future. I see bullish analyst estimates as a reason to remain bullish on this AI leader, especially as the disruptive potential of generative AI is just beginning to unfold.

Demand for NVDA chips is robust and will drive future revenue in the coming quarters. Therefore, despite some investor concerns, I expect NVDA to continue to maintain its clear AI dominance with an unbeatable competitive moat and best-in-class AI products and services.

A discussion of Nvidia’s impressive quarterly earnings

Nvidia posted yet another stellar second quarter result on August 28, 2024, driven by accelerated computing and the continued push for generative AI. Adjusted earnings of $0.68 per share easily beat the consensus analyst estimate of $0.65 per share. The figure was much higher (+152%) than the fiscal Q2-2023 figure of $0.27 per share.

The company posted a 122% year-over-year increase in revenue, delivering $30.04 billion for the three months ended July 31 and beating analysts’ forecasts. Importantly, revenue from Data Center, the company’s jewel division, rose 154% year over year to $26.3 billion. In addition, NVDA’s adjusted gross margin increased 5 percentage points to 75.1% from 70.1% a year ago. Many investors were apparently hoping for even higher numbers, and so the stock fell slightly following the Q2 report. The stock then continued a downtrend until it bottomed on September 6, just above the $100 level.

Nvidia’s Q3 guidance looked less promising to investors, with revenue expected to come in at around $32.5 billion. Guidance came in below expectations. Adjusted gross margins are expected to settle at around 75%, versus 75.15% delivered in Q2.

NVDA’s concerns about insider sales are over

Internal sales at Nvidia have added downward pressure on NVDA stock in recent months. CEO Jensen Huang sold off NVDA shares in several trades from June to September, but it’s important to note that these sales were part of a predetermined trading plan adopted in March. This plan allowed Huang to sell up to six million NVDA shares by the end of the first quarter of 2025.

Notably, Huang completed sales of over $700 million in NVDA stock. Despite the importance of these sales, he remains the company’s largest individual shareholder. At last report, Huang owned 786 million shares through various trusts and partnerships and 75.3 million shares directly, according to company filings. Combined, Huang controls a ~3.5% stake in the company, totaling approximately 859 million shares.

NVDA’s valuation is not expensive given its earnings growth potential

Investors may have been hesitant to buy NVDA stock at current levels, pointing to the stock’s extraordinary run, as well as concerns about slowing growth and the company’s growth.

On the contrary, however, my contention is that NVDA stock is not as expensive as it might seem. It currently trades at a forward P/E ratio of around 43x (based on FY2025 earnings expectations). This is actually cheaper than some valuation multiples of its peers. For example, NVDA’s closest competitor and US semiconductor company Advanced Micro Devices has a forward P/E of 46.8x. Interestingly, NVDA’s current valuation still reflects a 10% discount to its five-year average P/E of 47.3x.

Given NVDA’s consistent outperformance and strong upside potential, the current valuation appears reasonable and justified. Any future decline in the stock price could represent a solid buying opportunity in my opinion, especially given Nvidia’s huge potential in the rapidly expanding AI market.

Is NVDA stock a buy or sell, according to analysts?

With 39 Buys and three Hold ratings from analysts over the past three months, the TipRanks consensus rating is a Strong Buy. Nvidia’s average price target of $152.44 implies upside potential of around 26% over the next year.

Bottom line: Consider NVDA stock for its long-term AI potential

Despite the recent weakness, NVDA stock has nearly tripled over the past year, compared to a roughly 37% gain for the Nasdaq 100. In my view, the subsequent earnings selloff for NVDA stock has been largely driven by profit taking . After hitting the near $100 level, the stock now appears to be in recovery mode.

In the short term, I think the ongoing economic and political uncertainties may keep the stock within bounds. However, I view any dips as buying opportunities. I see NVDA as a strong long-term investment given AI’s continued significant potential.

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