Nvidia: The Top AI Stock to Buy Despite New Competition

Even with the recent successes of new players like DeepSeek, Nvidia remains a dominant figure in the global AI market.<\/p>

Shares of semiconductor leader Nvidia (NVDA) have dipped about 5% so far in 2025. This decline has occurred despite the company showing solid fundamentals. The stock fell amid widespread concerns that spending on artificial intelligence (AI) might slow down in the near future. Wall Street reacted nervously after the Chinese start-up DeepSeek reported that it had trained its open-source AI model, DeepSeek-R1, for less than $6 million, a stark contrast to the $100 million spent on OpenAI's GPT-4.<\/p>

However, many experts are questioning DeepSeek's claims about training this model with only 2,000 H800 graphics processing units (GPUs) as opposed to the 25,000 H100 GPUs required for GPT-4. Alexander Wang, the CEO of Scale AI, has suggested that DeepSeek might have utilized as many as 50,000 H100 chips, but has not been transparent about this due to U.S. export controls. Although Wang did not provide evidence, this speculation brings skepticism to DeepSeek's assertions.<\/p>

On the other hand, if DeepSeek has genuinely achieved significant cost efficiencies in generative AI, this could ultimately benefit Nvidia. As technology becomes cheaper and more efficient, demand is expected to rise, subsequently increasing the total addressable market for AI-optimized chips, which Nvidia produces.

Given this context, Nvidia seems to be suffering more from fears than from real issues. For savvy investors, the recent decline in stock price could present a buying opportunity. Below are several reasons why Nvidia is an appealing investment in 2025.

Strong Financial Performance

Nvidia has shown impressive performance in its financials recently. In its fiscal 2025 third quarter (ending October 27, 2024), the company's revenue surged 94% year-over-year to reach $35.1 billion. This growth was largely driven by a remarkable 112% increase in data center revenue, hitting $30.8 billion. The company also enjoys healthy gross margins, typically in the mid-70s percentage range, although these might see a slight dip during the initial phase of its Blackwell systems rollout.<\/p>

Thanks to its strong profitability, Nvidia is committed to providing substantial returns to its shareholders. In Q3, the company returned $11.2 billion through dividends and share buybacks. Management has projected that revenue for the fourth quarter will be around $37.5 billion, give or take 2%. This optimistic outlook is based on ongoing demand for its Hopper architecture chips and the early stages of Blackwell systems production. With demand for AI chips currently eclipsing supply, Nvidia is poised to gain significant pricing power moving forward.

Blackwell Infrastructure: A Game Changer

Nvidia's upcoming end-to-end AI infrastructure solution, Blackwell, is anticipated to be crucial in maintaining the company's leadership position in the accelerated computing arena. As AI workloads grow in complexity, Blackwell supports seven different chips and a variety of networking options, accommodating air-cooled and liquid-cooled data centers.

Recent results from MLPerf Training have revealed that Blackwell outperforms previous Hopper generation chips by a factor of 2.2 while also cutting computing costs by four times when running the GPT-3 benchmark. These efficiencies are expected to generate heightened demand for Blackwell systems across various sectors and applications. Currently, Nvidia is fully engaged in producing Blackwell systems, having dispatched 13,000 Blackwell GPU samples in Q3. The company expects revenue from Blackwell to exceed prior estimates of several billion dollars in the fourth quarter.

Rising Enterprise AI Adoption

More companies are increasingly choosing the Nvidia AI Enterprise platform, which includes NVIDIA NeMo and NIM microservices, as their go-to platform for creating AI Co-Pilots and custom agents. Major companies like Salesforce, Cloudera, SAP, and ServiceNow are utilizing this platform to speed up the development of AI applications.

Given this trend, Nvidia's Enterprise AI platform is anticipated to be a significant revenue driver in the coming months, especially considering that around 1,000 companies are already utilizing NVIDIA NIM. Management expects revenue from this platform to more than double year-over-year in fiscal 2025. Nvidia is effectively transitioning from a hardware-centric business to a comprehensive AI infrastructure provider.

The company also sees vast potential in sectors like industrial AI, autonomous systems, and robotics where foundational models interact with the physical world. Nvidia is prepared to take advantage of these opportunities through its Omniverse platform and new Cosmos technology.

Valuation Metrics

Currently, Nvidia trades at about 28 times its forward earnings, which may seem high relative to traditional valuation metrics. However, several factors justify this premium. Analysts predict the company will experience year-over-year revenue growth of 112% and earnings per share (EPS) growth of 127% in fiscal 2025.

The chip giant stands to gain tremendously from two key shifts in global computing: a trillion-dollar upgrade cycle transitioning data centers from CPU-dependent to accelerated computing and the rise of AI factories operating continuously to enhance digital intelligence. Additionally, Nvidia's competitive advantages, such as its approximately 90% share of the global GPU market and a robust software ecosystem supporting its hardware, lend credence to its growth prospects. Notably, the company’s price/earnings-to-growth (PEG) ratio sits at an appealing 0.2.

Considering all these factors, Nvidia appears to be a wise investment choice for 2025.

No positions are held in any of the mentioned stocks by the author. The Motley Fool has positions in and recommends Nvidia, Salesforce, and ServiceNow. The Motley Fool also has a disclosure policy.

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