NVIDIA NVDA is currently seen as relatively undervalued. Its trailing 12-month price-to-earnings (P/E) ratio of 53.86 is below the industry average of 63.16. This lower valuation might indicate market skepticism about NVDA's growth potential or possibly reflect the mispricing of a company poised to maintain its leadership in AI computing through 2025.
Image Source: Zacks Investment Research
For investors, the key question is how to approach NVDA, given this valuation. To make an informed decision, it's essential to carefully assess the company's fundamental strengths and weaknesses as a leading designer of artificial intelligence (AI) chips.
NVDA's New Blackwell Architecture: The AI Game-Changer
NVIDIA recently introduced a new generation of chips called the Blackwell architecture. These chips are many folds faster than the previous generation when performing certain tasks. This speed improvement makes them incredibly valuable for companies that rely on AI, as they allow computers to process data much more quickly and efficiently. For example, a chatbot like ChatGPT can provide smarter and faster answers because of these chips.
Amazon.com Inc AMZN, Microsoft Corporation MSFT, and Alphabet Inc GOOGL are companies that provide cloud services (allowing businesses to rent computing power instead of purchasing their equipment). These companies are rapidly adopting NVIDIA's new Blackwell GPUs to enhance their offerings, especially for AI and high-performance computing tasks.
NVDA's Role in Building the AI Factories of Tomorrow
Imagine factories that don't make cars or furniture but instead produce intelligence. These "AI factories" use powerful NVIDIA hardware and software to continuously train and improve AI systems. They work day and night like traditional factories to churn out smarter and more capable AI models.
This whole process -- training AI and deploying it to perform tasks -- requires a combination of specialized hardware (NVIDIA GPUs) and smart software. NVIDIA's technology is the engine driving these factories, enabling them to generate intelligence with remarkable efficiency.
NVIDIA's infrastructure is not just for tech giants. Many small, AI-focused startups rely on NVIDIA's tools to build and deploy their innovations. These startups create everything from automated legal assistants to digital art platforms powered by generative AI.
With generative AI becoming a multi-billion-dollar industry, the demand for NVIDIA's products continues to grow as more big and small companies enter this transformative space.
NVDA's Global Reach: Powering AI Across Borders
NVIDIA isn't just a leader in one country or one region -- it's making its mark all over the world. Many countries want to build advanced AI systems tailored to their unique needs, such as using local languages or solving specific challenges in industries like healthcare or education.
NVIDIA is helping these countries by providing powerful GPUs and software technology that makes creating these systems possible. This includes working with governments and companies to set up AI infrastructure within their borders.
The leading AI chip designer is working with companies in India to create AI "factories," where large numbers of NVIDIA GPUs work together to train and run advanced AI models.
In Japan, NVIDIA technology is powering the country's most powerful AI supercomputers. These systems can handle tasks like analyzing complex scientific data, predicting weather patterns, or even advancing robotics for manufacturing.
NVDA's Potential: A Big Winner in 2025?
NVIDIA's remarkable performance is reflected in its one-year price chart. The stock has surged 175.9%, significantly outperforming the industry's 124% gain. Despite this strong growth, the stock remains undervalued, with its current P/E ratio below its five-year median of 68.61, indicating substantial potential for further gains in 2025.
Following the positive developments, most analysts expect NVIDIA to maintain robust gross margins despite supply constraints, with projections to stabilize and improve as Blackwell ramps up. Additionally, returning $11.2 billion to shareholders in the third quarter of fiscal 2025 via share repurchases and dividends underscores the company's strong commitment to delivering shareholder value.
Investors looking to capitalize on significant gains from the AI revolution next year should not hesitate to acquire NVDA shares. The stock currently holds a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Also, Wall Street's average price target on NVDA suggests a 30.3% increase from its recent closing price of $134.70, with the highest target reaching $220, representing a potential gain of 63.3%. This indicates that current shareholders holding onto their shares could see significant short-term benefits if the stock trends upward as projected.
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 5 Stocks Set to Double. Click to get this free report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Microsoft Corporation (MSFT) : Free Stock Analysis Report
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.