The Nvidia AI prodigy (NASDAQ:NVDA) the stock has soared colossally, from $15 (split-adjusted) when I first wrote about it to nearly $121 currently. It has overtaken Apple to become the second most valuable company in the world. I also predicted that NVDA might do a stock split, and that’s what happened. The stock continues to surprise with new highs (+144% since the start of the year) after its spectacular profits. Nevertheless, my thesis remains intact: NVDA is attractive in the long term because of its undeniable leadership in AI and its exponential growth potential.
NVDA Reports Skyrocketing Profits Again and Again
On May 22, Nvidia reported another stellar first-quarter result, driven by robust continuous computing and accelerating momentum in generative AI demand. Adjusted earnings of $6.12 per share comfortably beat the consensus estimate of $5.60 per share. Furthermore, this figure is much higher (+461%) than the first quarter fiscal 2024 (ended April 2023) figure of $1.09 per share.
Impressively, first-quarter revenue jumped 262% year-over-year to $26.04 billion, beating the consensus estimate of $24.59 billion. On top of that, its adjusted gross margin increased 13.8 percentage points to an astonishingly new level of 78.4%, up from 64.6% a year ago.
Alongside the earnings report, the company also announced a 10-for-1 stock split. Although the stock split does not change the company’s valuation or performance, it means that NVDA will now be more available to retail investors, thereby creating short-term momentum in the stock price.
On top of that, the company increased its quarterly cash dividend by 150%, to $0.01 per share following the split. Shares of NVDA began trading today on an adjusted basis. It’s important to note that this is Nvidia’s sixth stock split.
Importantly, NVDA’s flagship segment, data center revenue, soared 427% year-over-year to $22.6 billion. The segment accounts for 86% of the company’s total revenue. As expected, revenues declined in China due to U.S. export control restrictions. During the earnings conference call, management said that “activity in China is significantly below historical levels.”
Looking ahead, the second quarter guidance looks promising, with revenue expected around $28 billion, above expectations. However, adjusted gross margins are expected to be around 75.5%, compared to 77% forecast for the first quarter three months ago. However, it is still 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, over the past year.
NVDA continues to innovate and maintain its status as a leader in best-in-class AI
Nvidia continues to innovate in the field of AI, keeping its status quo of leadership intact by innovating new cutting-edge AI products. NVDA’s latest GPUs and CPUs, backed by both their hardware and software capabilities, remain top-of-the-line in the AI industry. As the preferred choice in high-computing data centers around the world, NVDA enjoys superior pricing power.
The scope and expansion of AI continues to grow significantly, and demand clearly continues to outstrip supply. During the earnings conference call, Nvidia CEO Jensen Huang said: “Beyond cloud service providers, generative AI has expanded to consumer Internet companies and enterprises, customers of sovereign AI, automotive and healthcare, creating multiple multi-billion dollar verticals.
At the Computex conference held in Taiwan on June 2, Huang unveiled Nvidia’s latest AI architecture, Rubin, which is expected to be commercially available in 2026. This follows the launch of the Blackwell platform less three months in March. Blackwell, designed for high-performance AI and scientific computing, is the successor to the Hopper platform, optimized for AI inference and training and launched less than a year ago.
Blackwell is now in full production and expected to increase in the third quarter. Meanwhile, Hopper continues to experience strong demand.
Additionally, Huang said NVDA will release a new family of chips every year, compared to its original plan to release new models every two years. This accelerated pace of innovation and rapid transition to newer models and chip improvements has allowed Nvidia to maintain a 70% to 95% market share (according to estimates by Mizuho Securities) in the global chip market. AI.
However, competition in the AI field is intensifying. Competitors like AMD (with its Ryzen AI 300) and Intel are launching new AI chips at lower prices. Despite this, Nvidia’s advantage in AI technology keeps AMD and Intel several quarters behind NVDA.
NVDA’s valuation is still not expensive, given its earnings prowess
After overtaking Apple (NASDAQ:AAPL) by market cap, many investors are hesitant to buy NVDA stock amid its remarkable rally and concerns about overvaluation.
On the contrary, NVDA stock is not expensive. Currently, it trades at a forward P/E ratio of 44.7x (based on FY2025 earnings expectations). This is relatively cheaper than its peer group’s multiples. For example, AMD, NVDA’s closest competitor and U.S.-based semiconductor company, trades at a forward P/E of 47.8x, while the U.S.-based semiconductor stock -Low ASML (NASDAQ: ASML) trades at a forward P/E of 51x.
Interestingly, its current valuation still hovers around its five-year average of 46.6x, despite multiplying by earnings, margins and share price. These are attractive price points and likely present a reasonable buying opportunity, in my opinion, given the supernormal growth potential of AI market titan Nvidia.
Is NVDA Stock a Buy or Sell, According to Analysts?
NVDA presents itself as an invincible force, a stock that attracts widespread attention. With 37 Buys and three Hold ratings from analysts over the past three months, the consensus rating is undoubtedly a Strong Buy. Nonetheless, Nvidia’s average stock target price of $123.62 suggests shares will return 2.2% over the next year.
Bottom Line: Consider NVDA Stock for Its Long-Term AI Potential
Nvidia has become the second most valuable stock in the world, with a market capitalization of $2.98 trillion, a significant jump 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 hold a significant market share in the AI sector, which will continue to grow by leaps and bounds in the years to come. Therefore, I will continue to buy NVDA at current levels. Although some critics warn of a decline in demand after the first wave of AI installations, I think that’s at least several quarters away. Therefore, I will continue to buy NVDA at current levels.
Disclosure