This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
This past year was another terrific one for technology stocks in particular. Tailwinds driven by artificial intelligence (AI) helped push the S&P 500 higher by 23%, while the Nasdaq Composite gained an impressive 29%.
The "Magnificent Seven" stocks were among the year's top gainers in the market, and perhaps no other garnered more attention than semiconductor leader Nvidia -- which was the top-performing stock in the Dow Jones Industrial Average in 2024.
Last year, Nvidia gained approximately $2.1 trillion in market capitalisation -- the highest of any company. This propelled Nvidia to become one of the world's most valuable businesses. While Nvidia's current run could suggest that the stock is due for a pullback, Wedbush Securities technology analyst Dan Ives is calling for significantly more growth ahead for the AI darling -- and I agree.
Let's look at Nvidia's latest catalysts and make the case for why 2025 could be another one for the record books.
The stars are aligning for Nvidia in 2025
Over the last two years, Nvidia has emerged as the leader of the pack in the AI marathon, and it all boils down to one thing: graphics processing units (GPUs). GPUs are advanced chipsets necessary for developing generative AI applications.
Nvidia's deep roster of GPUs has helped the company separate from competitors such as Advanced Micro Devices, and acquire an estimated 90% of the GPU market.
NVDA Revenue (Quarterly) data by YCharts.
To add some context here, Nvidia's dominance has fueled consistent revenue and profit growth for the company -- allowing it to double down on research and development (R&D) and pioneer even newer, innovative products. Enter Blackwell, Nvidia's next-generation GPU architecture, which is reportedly already sold out for the next 12 months.
While this is more of a company-specific tailwind, Ives believes that broader investments in AI infrastructure could eclipse $1 trillion in the coming years. Nvidia is taking advantage of this windfall of rising capital expenditure (capex), underscored by investments in European GPU cluster specialist Nebius, and the acquisition of AI infrastructure business Run:ai (which it acquired for a reported $700 million).
Is Nvidia stock a buy right now?
Given the massive rise in Nvidia's stock price, it's a prudent idea to look at some of the company's valuation metrics and cross-reference them against the catalysts I've covered above.
| Valuation Metric | Value as of 3 January |
|---|---|
| Price-to-earnings (P/E) ratio | 56.7 |
| Forward P/E ratio | 48.8 |
| Price-to-free cash flow (P/FCF) | 63.4 |
| Price/earnings-to-growth (PEG) ratio | 1.0 |
Data source: YCharts.
On the surface, the valuation multiples above may give the illusion that Nvidia is a pricey stock. But when you consider that the company's P/E and P/FCF are materially lower today than they were a year ago, Nvidia's valuation profile looks pretty compelling. Essentially, the company's profits are accelerating at a faster rate than the company's value (price, or market cap), and therefore Nvidia's valuation actually could be seen as quite reasonable.
Furthermore, a PEG ratio of 1 implies that Nvidia is fairly valued right now. I think it's quite difficult to forecast what Nvidia's earnings profile could look like over the next several years as Blackwell and the company's peripheral investments begin to bear fruit.
Not only do I see Nvidia as a screaming buy right now, I think the company could be the first to enter exclusive territory in 2025: The $4 trillion club. I am excited for how Nvidia will perform this year, and I think the stock is a compelling buying opportunity right now for AI and growth investors alike.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
