This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
History doesn't normally repeat itself, but it often rhymes. So investors can take what has happened in the past as an indicator of what might happen in the future.
With that in mind, a pattern seems to be developing with Nvidia (NASDAQ: NVDA) stock: It has made large price gains in May in each of the past two years, and the way the stock is set up right now is reminiscent of how it looked before both of those jumps. That could be a sign for investors to buy it now.
New year, same valuation
Nvidia makes graphics processing units (GPUs), which are fantastic tools for anyone looking to perform the types of computing tasks that can benefit from a lot of parallel processing power -- applications like displaying high-resolution video game graphics (the task they were originally designed for) and artificial intelligence (AI) model training.
Demand for GPUs exploded in early 2023 as the race to build out data centers to support AI software kicked off. This led to a big jump in Nvidia's stock price in late May of that year after it reported solid first-quarter fiscal 2024 results and offered impressive guidance for fiscal Q2.
Fast-forward to May 2024. After Nvidia had already posted incredible results for an entire year, the market wasn't sure whether it could keep its growth rates up. However, it turned in another impressive fiscal Q1 report that sent the stock higher.
In May 2025, we're seeing a similar setup. Investors are worried that Nvidia won't be able to deliver the pace of growth they've become accustomed to -- though this time, their concerns are driven by factors such as President Donald Trump's tariffs and fears that a U.S. economic slowdown is imminent. As a result, it's heading toward that quarterly report well off its all-time high and trading at a forward price-to-earnings ratio in the neighborhood of 26.
That's almost exactly the forward PE that Nvidia was trading at during the past two Mays. However, after reporting solid Q1 growth and giving an upbeat outlook for the rest of the year, the stock often starts to trade in the mid-30s to mid-40s range.
NVDA PE Ratio (Forward) data by YCharts. PE Ratio = price-to-earnings ratio.
Because the current setup is nearly identical to the last two years, I'm fairly confident that Nvidia will experience a big share price jump following its fiscal Q1 report on May 28, as long as there are no unexpected announcements or revelations regarding new challenges.
Q1 will feature a $5.5 billion write-off
One headwind for Nvidia that appeared during this year's Q1 was the U.S. government's decision to limit which high-end chips can be exported to China. Because the export rules changed, Nvidia had to take a $5.5 billion writedown this quarter, which will affect its Q1 earnings. Those export restrictions could also drag on future demand.
However, the statements by AI hyperscalers in their own recent Q1 reports indicated that they haven't changed their massive capital expenditure plans for data centers, mostly geared toward AI, despite the increasing macroeconomic headwinds generated by Trump's tariffs. The tens of billions of dollars they plan to spend on cloud infrastructure build-outs should give Nvidia the growth necessary to justify its current valuation and then some.
Nvidia believes data center capital expenditures will reach $1 trillion annually by 2028, up from around $400 billion in 2024. If that turns out to be true, then there should still be a ton of long-term upside left in Nvidia's stock.
But in the near term, Nvidia's stock may be primed for a big move after it reports earnings on May 28. With that in mind, picking up shares at their current fairly cheap valuation looks like it would be a lucrative move.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
