AI prodigy Nvidia (NASDAQ:NVDA) shares have risen tremendously, from $15 (split-adjusted) when I first wrote about it to nearly $121 currently. It has overtaken Apple to become the second highest valued company in the world. I also predicted that NVDA could do a stock split, and that just happened. The stock continues to surprise with new highs (+144% YTD) following its spectacular earnings beat. Still, my thesis remains: NVDA is attractive long-term due to its undeniable AI leadership and exponential AI growth potential.
NVDA continues to report overwhelming profits
On May 22, Nvidia released another stellar Q1 result, driven by robust continued computing power and accelerating momentum in generative AI demand. Adjusted earnings of $6.12 per share comfortably beat the consensus estimate of $5.60 per share, and were significantly higher (+461%) than the first quarter 2024 (ended April 2023) figure of $1.09 per share.
Impressively, first-quarter revenue increased 262% year over year to $26.04 billion, beating the consensus estimate of $24.59 billion. In addition, adjusted gross margin increased 13.8 percentage points to an incredible new high of 78.4%, up from 64.6% a year ago.
At the same time as releasing its earnings report, the company also announced a 1:10 stock split. While the stock split does not change the company’s valuation or performance, it does mean that NVDA is now more accessible to retail investors, which will provide a short-term boost to the stock price.
In addition, the company increased its post-split quarterly cash dividend by 150% to $0.01 per share. NVDA stock began trading today on a split-adjusted basis. Notably, this is Nvidia’s sixth stock split.
Importantly, NVDA’s crown jewel, data center revenue, grew 427% year over year to $22.6 billion. The segment accounts for 86% of the company’s total revenue. As expected, revenue in China declined due to U.S. export control restrictions. During the earnings call, management acknowledged that “business in China is significantly below historical levels.”
Looking ahead, second-quarter guidance appears promising. Revenue is expected to be around $28 billion, beating expectations. However, adjusted gross margins are expected to be around 75.5%, compared to 77% forecast for the first quarter three months ago. However, the company is still well ahead of chipmakers such as Advanced Micro Devices (NASDAQ: AMD) and Intel (NASDAQ:INTC), with gross profit margins of 50.6% and 41.5% respectively last year.
NVDA continues to innovate and maintain its leading status in the field of AI
Nvidia continues to innovate in the AI space and maintains its status quo as a market leader by developing new, cutting-edge AI products. NVDA’s latest GPUs and CPUs, supported by both hardware and software features, remain leaders in the AI industry. As the preferred choice in high-performance data centers worldwide, NVDA has superior pricing power.
The scale and adoption of AI continues to grow manifold, and demand clearly continues to outstrip supply. During the quarterly earnings call, Nvidia CEO Jensen Huang stated, “Beyond cloud service providers, generative AI has expanded to internet companies and enterprises, sovereign AI, automotive and healthcare customers, creating multiple multi-billion dollar vertical markets.”
At the Computex conference in Taiwan on June 2, Huang unveiled Nvidia’s latest AI architecture, Rubin, which is expected to launch in 2026. This follows the launch of the Blackwell platform less than three months ago in March. Blackwell, designed for high-performance AI and scientific computing, was the successor to the Hopper platform, which was optimized for AI inference and training and launched less than a year ago.
Blackwell is now in full production and is expected to ramp up in the third quarter. Hopper, meanwhile, continues to see strong demand.
In addition, Huang said NVDA will launch a new chip family every year, compared to its original plan of releasing new models every two years. This accelerated pace of innovation and rapid transition to newer models and chip improvements have enabled Nvidia to maintain a 70 to 95 percent market share (according to estimates by Mizuho Securities) in the AI chip market.
However, competition in the AI space is heating up. Rivals like AMD (with its Ryzen AI 300) and Intel are bringing newer AI chips to market at lower prices. Despite this, AMD and Intel remain behind NVDA for several quarters due to Nvidia’s first-mover advantage in AI technology.
Given its earnings power, NVDA’s valuation is still not too high
After overtaking Apple (NASDAQ:AAPL) by market cap, many investors are hesitant to buy NVDA shares given its remarkable rally and concerns about overvaluation.
On the contrary, NVDA stock is not expensive. It is currently trading at a P/E ratio of 44.7 (based on earnings expectations for the fiscal year 2025). This is relatively cheaper than the multiples of the peer group. For example, NVDA’s closest competitor and US semiconductor company AMD is trading at a P/E ratio of 47.8, while the Dutch semiconductor stock ASML (NASDAQ:ASML) is trading at a P/E ratio of 51.
Interestingly, the current valuation is still at its five-year average of 46.6x, even though earnings, margins and share price have multiplied. These are attractive price levels and, in my opinion, likely represent a reasonable buying opportunity given the above-average growth potential of AI market giant Nvidia.
Is NVDA stock a buy or sell according to analysts?
NVDA is an invincible force, a stock that is attracting a lot of attention. With 37 buy recommendations and three holds from analysts over the past three months, the consensus recommendation is clearly a Strong Buy. Still, the average price target for Nvidia shares of $123.62 suggests shares will return 2.2% over the next year.
Conclusion: Consider NVDA stock for its long-term AI potential
Nvidia is now the second most valuable stock in the world with a market cap of $2.98 trillion, a significant jump from nearly $100 billion less than five years ago. NVDA has earned its status by taking the AI industry to unprecedented heights.
Despite increasing competition, NVDA continues to have a significant market share in the AI industry that will continue to grow by leaps and bounds in the coming years, so I will continue to buy NVDA at current levels. While some critics warn of slowing demand after the first wave of AI installations, I believe that is still at least several quarters away, so I will continue to buy NVDA at current levels.
Notice