AI prodigy Nvidia (NASDAQ:NVDA) stock has risen colossally from $15 (split-adjusted) when I first wrote about it to almost $121 currently. It surpassed Apple to become the world’s second-highest-valued company. I also predicted that NVDA could go for a stock split, and it just did. The stock continues to surprise with newer highs (+144% YTD) after its spectacular earnings beat. Nonetheless, my thesis remains intact: NVDA is attractive for the long term based on its undeniable AI leadership and exponential AI growth potential.
NVDA Reports Blowout Earnings Over and Over Again
On May 22, Nvidia posted yet another blowout Q1 result on May 22, driven by robust continued computing and accelerated generative AI demand momentum. Adjusted earnings of $6.12 per share handily beat the consensus estimate of $5.60 per share. Also, the figure came in much higher (+461%) than the Fiscal Q1-2024 (ended April 2023) figure of $1.09 per share.
Impressively, Q1 revenue jumped 262% year-over-year to $26.04 billion, surpassing the consensus estimate of $24.59 billion. On top of that, its adjusted gross margin expanded 13.8 percentage points to an unbelievably new high at 78.4% from 64.6% a year ago.
Concurrent with the earnings report, the company also announced a 10-for-1 stock split. While the stock split does not change the valuation or the performance of the company, it does mean that NVDA will now be more available to retail investors, creating short-term momentum in the share price.
On top of that, the company hiked its quarterly cash dividend by 150% to $0.01 per share on a post-split basis. NVDA shares started trading on a split-adjusted basis today. Markedly, this is Nvidia’s sixth stock split.
Importantly, NVDA’s crown-jewel segment, Data Center revenues, soared 427% year-over-year to $22.6 billion. The segment makes up 86% of the firm’s total revenue. As expected, revenues declined in China due to the U.S. export control restrictions. During the earnings call, management affirmed that “business in China is substantially lower than the levels of the past.”
Looking ahead, the Q2 guidance appears promising, with its revenues expected to hover around $28 billion, ahead of expectations. However, adjusted gross margins are forecast to be around 75.5% versus 77% projected for Q1 three months ago. Nonetheless, it still remains far ahead of chipmakers like Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC), with gross profit margins of 50.6% and 41.5%, respectively, in the past year.
NVDA Continues to Innovate and Retains Its Top-Notch AI Leadership Status
Nvidia continues to innovate in the AI space, keeping its leadership status quo intact by innovating newer, cutting-edge AI products. NVDA’s latest GPUs & CPUs, backed by both its hardware and software capabilities, remain top-of-the-line in the AI industry. As the preferred choice in high-computing data centers worldwide, NVDA commands superior pricing power.
The scope and expansion of AI continue to grow manifold, and the demand clearly continues to outpace supply. During the earnings call, Nvidia CEO Jensen Huang stated, “Beyond cloud service providers, generative AI has expanded to consumer Internet companies and enterprise, Sovereign AI, automotive, and health care customers, creating multiple multibillion-dollar vertical markets.”
At the Computex conference held in Taiwan on June 2, Huang unveiled Nvidia’s latest AI architecture, Rubin, which is expected to begin shipping in 2026. This follows the launch of the Blackwell platform less than three months ago in March. Blackwell, designed for high-performance AI and scientific computing, succeeded the Hopper platform, which was optimized for AI inference and training and launched less than a year ago.
Blackwell is now in full production and expected to ramp up in Q3. Meanwhile, Hopper continues to see strong demand.
Further, Huang said that NVDA will launch a new family of chips every year, compared to its initial plan of releasing new models every two years. This accelerated pace of innovation and rapid transition to newer models and chip enhancements has allowed Nvidia to retain a 70% to 95% market share (according to estimates from Mizuho Securities) in the AI chip market.
However, competition in the AI space is heating up. Competitors like AMD (with its Ryzen AI 300) and Intel are launching newer AI chips at lower prices. Despite this, Nvidia’s first-mover advantage in AI technology keeps AMD and Intel several quarters behind NVDA.
NVDA Valuation Still Isn’t Expensive, Given Its Earnings Prowess
Having overtaken Apple (NASDAQ:AAPL) by market cap, many investors are hesitant to purchase NVDA stock amid its remarkable rally and concerns about overvaluation.
On the contrary, however, NVDA stock is not expensive. Currently, it’s trading at a forward P/E ratio of 44.7x (based on FY2025 earnings expectations). This is relatively cheaper than the multiples of its peer group. For instance, NVDA’s closest competitor and U.S.-based semiconductor company, AMD, is trading at a forward P/E of 47.8x, while Netherlands-based semiconductor stock ASML (NASDAQ:ASML) is trading at a forward P/E of 51x.
Interestingly, its current valuation is still hovering around its five-year average of 46.6x despite the earnings, margins, and stock price having grown multifold. These are attractive price levels and likely present a reasonable buying opportunity, in my view, given the supernormal growth potential for the AI market titan Nvidia.
Is NVDA Stock a Buy or Sell, According to Analysts?
NVDA stands as an invincible force, a stock that garners widespread attention. With 37 Buys and three Hold ratings from analysts in the last three months, the consensus rating is unmistakably a Strong Buy. Nonetheless, the average Nvidia stock target price of $123.62 suggests that the shares will return 2.2% over the next year.
Conclusion: Consider NVDA Stock for Its Long-Term AI Potential
Nvidia has climbed to become the second most valuable stock in the world, with a market cap of $2.98 trillion, a significant leap from just under $100 billion less than five years ago. NVDA has earned its stature by leading the AI industry to unprecedented heights.
Despite increasing competition, NVDA continues to enjoy a sizeable market share in the AI industry, which will continue to grow by leaps and bounds in the coming years. Therefore, I will continue to buy NVDA at current levels. While some critics warn of waning demand after the initial wave of AI installations, I believe this is at least several quarters away. Therefore, I will continue to buy NVDA at current levels.
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