Despite potential deceleration in Nvidia's expansion, I continue to advocate for investment.
Despite potential deceleration in Nvidia's expansion, I continue to advocate for investment.
Nvidia Corporation's (NVDA (-2.55%)) shares took a 3.4% hit following its fiscal 2025 third-quarter results, but I view this minor decline as a chance to boost my investment. While analysts predict a decrease in the company's revenue growth rate from an impressive 111.9% in fiscal 2025 to 49.2% in fiscal 2026, I remain convinced of this tech giant's fundamental story.
I'm particularly intrigued by the opportunities in the field of artificial intelligence (AI). Major cloud service providers are planning to invest a staggering $267 billion in AI infrastructure in the upcoming year, marking a 33.5% increase compared to current investments. Given Nvidia's 80% market share in AI chips, it sits at the heart of this "once-in-a-lifetime" opportunity, as stated by Amazon's CEO, Andy Jassy.
Here's why I'm planning to continue purchasing shares of this AI powerhouse despite its potentially decelerating growth:
A Leader in AI Infrastructure
Nvidia's recent results underscore its dominance in AI computing. The company reported a record data center revenue of $30.8 billion for its fiscal 2025 third quarter, reflecting a 112% year-over-year increase. This explosive growth is fueled by the insatiable demand from major cloud providers eager to bolster their AI capabilities.
Business giants like Microsoft aim to spend $80 billion on infrastructure in 2024, while Alphabet and Amazon have set aside $51 billion and $75 billion respectively for capital investments, with AI infrastructure being a key focus.
Nvidia's CEO, Jensen Huang, calls the current AI demand "crazy," with the total addressable market for AI accelerators projected to surge over 60% annually, reaching $500 billion by 2028, according to Advanced Micro Devices (AMD) CEO Lisa Su. This explosive growth isn't limited to existing applications; the entire industry is gearing up for the next wave of AI breakthroughs.
Rational Valuation amid the AI Gold Rush
Despite trading at 33.6 times forward earnings, Nvidia remains a reasonably priced stock considering its growth trajectory. With revenue growth exceeding 100% year-over-year and industry-leading profitability, the stock deserves its premium multiple.
Additionally, Nvidia's pricing power is noteworthy. Gross margins soared to 74.6% in the latest quarter on a GAAP basis, showcasing exceptional operational efficiency as production increases to meet rising demand. This pricing power originates from consistent technological innovation.
Various examples of this innovation can be found across Nvidia's product line. For instance, the H200 chip, which delivers twice the inference performance and 50% reduced total cost of ownership, as per management, has experienced significant sales growth and is now being used by major cloud providers such as AWS, CoreWeave, and Microsoft Azure. Meanwhile, its next-generation Blackwell platform has entered full production, promising even more significant performance enhancements in the coming years.
Is It Time to Invest?
While Nvidia's growth may be decelerating, I remain optimistic about its long-term prospects. As major cloud providers plan to boost AI investments in the years ahead and enterprise adoption continues to climb, Jensen Huang asserts that "$1 trillion worth of computing systems and data centers around the world are now being modernized for machine learning."
Moreover, the entire industry is potentially on the brink of a "Gutenberg moment" with the possible emergence of artificial general intelligence (AGI) -- AI systems capable of performing any intellectual task humans can -- within the next two to three years. This development could drive even greater demand for Nvidia's specialty chips.
A moderating growth rate might unsettle some investors, but I see a much larger picture emerging. With its strong market position, expanding technological lead, and the still-nascent AI infrastructure buildout in progress, I'm using this dip to boost my position in this AI titan aggressively.
Given the significant investments planned by major cloud service providers in AI infrastructure, totaling $267 billion next year, I believe this presents an excellent opportunity for further investing in Nvidia Corporation, considering its 80% market share in AI chips. Also, with the potential emergence of artificial general intelligence within the next few years, the demand for Nvidia's specialty chips could significantly increase, making it an attractive investment for finance-focused individuals.