Nvidia Stock Keeps Growing for Investors, but Is It Time to Lower Expectations for 2025?

Shares of Nvidia (NVDA -1.68%) have doubled in each of the last two years. The stock soared 239% in 2023 and is up 170% year to date at the time of this writing. Investors expect Nvidia to report another year of strong growth in 2025 as $1 trillion worth of data center infrastructure transitions to more advanced hardware for artificial intelligence (AI).

Although it might be tempting to buy the stock in hopes of another year of fantastic returns, it is essential to examine where Nvidia's data center business stands as we approach the new year and what investors should realistically expect.

Signs of Slowing Revenue Growth

The consensus estimate from Wall Street predicts revenue will increase by 51% in the upcoming fiscal year, which ends in January 2026. This growth rate is impressive for a company expected to earn around $129 billion this year.

One potential game-changer is Nvidia's upcoming launch of Blackwell, slated to ramp up in 2025. Blackwell is a comprehensive computing platform that uses multiple chips to provide exceptional performance in generative AI, quantum computing, and other high-performance tasks.

According to CFO Colette Kress, "Blackwell demand is staggering, and we are racing to scale supply to meet the incredible demand customers are placing on us." However, the challenge is that these soaring sales will face tough comparisons against previous periods, as revenue growth has already begun to slow—from 262% year-over-year growth in Q1 to 94% in Q3.

Stock Performance Outlook for Next Year

Kress's remarks about near-term demand for Blackwell suggest that Nvidia is still well-placed to enjoy significant demand, despite the slower revenue increase. AI models are evolving to become larger and more intelligent, leading to an ongoing need for more advanced GPUs. However, investors should remain aware of the potential risks that could hold back the stock's gains in the coming year.

In the competitive landscape, Advanced Micro Devices (AMD -0.17%) is also recording robust growth with its Instinct data center GPUs. Last quarter, AMD’s data center segment achieved a remarkable 122% year-over-year revenue growth, surpassing Nvidia's performance in that regard.

Nevertheless, this strong performance does not seem sufficient for AMD to capture a significant market share in the data center space. Nvidia maintains the most efficient supply chain to satisfy demand, with its data center GPU division bringing in $30.8 billion in revenue during the last quarter, far exceeding AMD's data center revenue of $3.5 billion.

A larger concern for Nvidia's investors might be the impact of slowing growth on the company's valuation. Currently, the stock is trading at a price-to-earnings (P/E) ratio of 54, a level consistent with its historical trading pattern over the past five years. However, it is crucial to understand that this high P/E ratio is likely built on investors' optimistic expectations for future triple-digit growth rates, which may no longer be realistic.

Wall Street analysts estimate that Nvidia's earnings will grow approximately in line with revenue growth next year at around 50%. Should investors choose to lower the stock's multiple to a 40 P/E ratio by this time next year, this could bring the share price down to about $177 based on next year’s earnings projections, suggesting a potential upside of 28%. Even at this new P/E level, it would still represent a substantial premium compared to the average stock.

Considering the likelihood of a reduced P/E ratio due to decelerating growth, it is not advisable to purchase Nvidia shares expecting another year of exceptional returns. Instead, potential investors might want to consider buying shares as a part of a long-term investment strategy, as the stock could produce more modest performance in 2025.

Nvidia, stocks, 2025