This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Nvidia (NASDAQ: NVDA) stock isn't cheap all that often, and any time it has sold off over the past few years has been an incredible buying opportunity. Right now, Nvidia is still well off of its all-time high thanks to the scare caused by DeepSeek's revolutionary artificial intelligence (AI) model, which was reportedly trained more cheaply than most U.S. models. The prevailing fear is that not as much computing power is needed to train AI models as once thought, which would harm Nvidia's business.
While there is some merit to this thinking, I don't think it's accurate, as the spending projections from some of Nvidia's biggest clients keep increasing. As a result, I think history will repeat itself, making right now a fantastic buying opportunity for Nvidia's stock.
Nvidia's revenue will dramatically rise again in 2025
Nvidia has been dominant over the past few years because it is powering a large chunk of AI innovations. Its graphics processing units (GPUs) can process calculations in parallel, which makes them far more useful for intense workloads like training an AI model. Furthermore, when companies buy a GPU, they don't buy just one or two; they buy thousands and connect them in clusters, further amplifying their computing power. Nvidia's GPUs have become the top pick for anyone in the AI field, as its results back it up.
Nvidia has reported stellar revenue growth quarter after quarter, driving the stock to new heights.
NVDA Revenue (TTM) data by YCharts
While it's true Nvidia's revenue growth is slowing, 94% growth is nothing to be disappointed with. As Nvidia becomes a larger business, its growth rate will naturally slow, as it becomes harder to grow the larger you get. Still, that isn't stopping Nvidia from posting jaw-dropping growth numbers: Wall Street analysts expect 72% growth for Q3 FY 2025 and 52% growth to $196 billion for FY 2026.
However, those numbers were called into question after DeepSeek announced a more efficient way to train its generative AI model. While these efficiency gains are real, and many companies are working to integrate them into their models, they don't change the fact that a lot more computing infrastructure is needed to handle all these AI workloads. This has led to many of Nvidia's largest clients stating that their capital expenditures for 2025 will be much higher than in previous years.
Meta Platforms stated that it will spend $60 billion to $65 billion on capital expenditures this year. Alphabet's is even higher at $75 billion. Amazon tops the charts with around $100 billion in capital expenditures expected for 2025. It's clear that there will be an unprecedented level of spending in 2025.
META Capital Expenditures (TTM) data by YCharts
This bodes well for Nvidia's business, as these companies are among its biggest clients. Clearly, Nvidia's business will remain strong over the next year and likely well past that. Combined with Nvidia's stock being on sale, I'd say the future looks bright for both the stock and the company.
Nvidia's stock has performed well for investors who bought at similar valuation levels
The last time Nvidia's stock was this cheap in terms of its trailing price-to-earnings (P/E) metric was in August 2024. Since then, the stock has risen around 25%, even with the DeepSeek-induced sell-off.
NVDA PE Ratio data by YCharts
You have to go even further back to find when Nvidia's stock was trading under 30 times forward earnings. That was in May 2024, and the stock has risen nearly 60% from that level.
Those are incredible returns, and any investor would be satisfied with a stock like that in their portfolio.
History is on Nvidia's side, and the stock looks historically cheap. Many of Nvidia's largest clients have stated that AI spending is going to keep increasing, which bodes well for the stock and the company. As a result, Nvidia's stock looks like a strong buy right now.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
