Nvidia(NASDAQ: NVDA) has become a stock market giant thanks to its dominance in one of today's highest-growth markets: artificial intelligence (AI), a $200 billion market that analysts say is heading for $1 trillion by the end of the decade. The tech company has practically built an empire of AI products and services including hardware, software, networking tools, and more -- to serve every AI customer along every step of their AI journey. Chief Executive Officer Jensen Huang has even called the company the "on ramp" to the AI world.
And Nvidia's crown jewel is its graphics processing units (GPUs), the fastest chips around that power crucial AI tasks such as the training and inferencing of models. Customers, including the world's biggest tech companie,s Microsoft and Amazon, rush to Nvidia for its latest products, helping the company bring in billions of dollars in earnings. In fact, in the recently closed fiscal year, Nvidia reported a triple-digit gain in revenue to more than $130 billion, a record.
The shares have followed, soaring 1,500% over five years. The downside of all of this is, at a certain point, Nvidia's stock traded at levels many investors considered expensive. But, in recent weeks, as stocks declined on concerns about the general economy, so did Nvidia -- and its valuation. In fact, the stock is trading at its lowest in relation to forward earnings estimates in more than a year. Has the stock become too cheap to ignore? Let's find out.
Image source: Getty Images.
Nvidia's path from gaming to AI
First, a quick summary of the Nvidia story so far. This tech superstar wasn't always the center of the market's attention. In its earlier days, it served mainly the video gaming industry with its GPUs -- but as it became clear that these chips could be useful elsewhere, Nvidia developed the parallel computing platform CUDA to make that happen.
And when GPUs started serving the AI community, well, the rest is history. AI customers have flocked to Nvidia for these top performing chips, and here's a good example of their popularity, from Oracle co-founder Larry Ellison's comment last year. He said he and Tesla chief Elon Musk took out Nvidia's Huang for dinner and "begged" him for more chips. This is because demand for the products is high. In fact, demand for the company's latest innovation, the Blackwell architecture, has been so high that it's reached "insane" levels, Huang told CNBC in an interview a few months ago.
In the company's recent earnings call, it said Blackwell brought in $11 billion in revenue during its first quarter on the market. And at the same time, though the launch for such a complex customizable product is costly, Nvidia still was able to keep gross margin above 70%, showing high profitability on sales.
Nvidia's recent headwinds
In recent weeks, though, Nvidia stock has faced a number of headwinds. First, as start-up DeepSeek announced it had trained its model on Nvidia's lower-priced GPUs, investors worried others might follow -- resulting in potential revenue declines for Nvidia. Then, the Trump administration's intention to stick with -- and possibly even reinforce --export controls on chips to China proved to be another challenge for Nvidia. Finally, President Trump's launch of tariffs on imports from three key trading partners deepened concerns about economic growth and the earnings of companies that, like Nvidia, manufacture goods outside the United States.
As a result, Nvidia stock slid about 14% over the past month. And this has brought valuation down -- Nvidia now trades at only 24 times forward earnings estimates, it's cheapest level in more than a year.
Is Nvidia dirt cheap today?
Now, let's get back to our question: Is Nvidia too cheap to ignore, or are the headwinds I've mentioned reason to put the brakes on buying this AI player? Well, the DeepSeek issue may have dissipated as major Nvidia customers in recent times spoke of their AI investing plans -- and there hasn't been a single sign of scaling back. In fact, AI spending is soaring. Meta Platforms, for example, says it intends to spend as much as $65 billion this year on its scale up and will end the year with 1.3 million GPUs.
As for the chip export controls, they have weighed on Nvidia's revenue in China since they were implemented in 2022. Still, Nvidia, as mentioned above, continues to report significant revenue growth as it excels in other parts of the world.
Finally, let's consider Trump's tariffs. They could weigh on Nvidia and many other U.S. companies, but it's important to keep in mind that the current trade war is a temporary challenge. And Trump has delayed the tariffs on products included in the United States-Mexico-Canada Agreement, suggesting there may be some flexibility in their implementation.
Looking at Nvidia, specifically, all major signs look positive. The company's reported blowout earnings quarter after quarter, and its market leadership and focus on innovation suggest that could continue for quite some time. All of this means that, at today's price, Nvidia is too cheap to ignore and looks like a screaming buy for long-term investors.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon, Oracle, and Tesla. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Microsoft, Nvidia, Oracle, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
