A long-time darling of the stock market, Nvidia's (NASDAQ: NVDA) stock fell more than 40% from its 52-week high in January 2025 to a 52-week low in April 2025. Investors were concerned about the potential decline in enterprise spending on artificial intelligence (AI) infrastructure and the impact of tariff wars.
However, investor sentiment has recently turned for the better after Nvidia announced recent developments regarding its partnership with Humain, a new AI-focused branch of Saudi Arabia's Public Investment Fund. The stock has recovered most of its losses and is up 30% in the last month. While the stock remains approximately 9% below its January high, it appears positioned to surge in the coming months, especially after it releases its first-quarter 2026 earnings results (for the period ending April 27) on May 28.
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Here are some reasons that support this hypothesis.
Continued dominance in the AI infrastructure market
Nvidia is an undisputed leader, accounting for roughly a 90% share of the data center graphics processing unit (GPU) market. The company stands to benefit significantly from the rapid expansion in data center capital expenditures, projected to increase from roughly $500 billion in 2025 to $1 trillion by 2028. Many cloud players reiterated their commitments to investing in AI infrastructure, which contradicts the narrative of a potential slowdown in AI spending.
Nvidia's market dominance is also set to continue, as evidenced by the robust demand for its Blackwell architecture systems, which are in full production across multiple configurations. Blackwell is already a success, accounting for $11 billion in revenues in the fourth quarter.
Blackwell has been optimized for running inference workloads, including the real-time deployment of AI models, such as computationally intensive reasoning AI or long-term thinking models. AI inference presents a significantly larger opportunity than AI training workloads, since a trained model is used multiple times in production. By offering dramatically higher price performance than previous Hopper architecture chips, Blackwell is well positioned to capitalize on this opportunity.
American-made AI supercomputers and product innovation
In April 2025, Nvidia announced plans to build up to $500 billion in AI infrastructure in the U.S. within the next four years in partnership with several manufacturing players. Both the AI chips and other supercomputer components will be manufactured entirely in the U.S. This move could enable the company to mitigate the risks associated with its supply chain, which is currently significantly vulnerable to geopolitical tensions.
Nvidia is also committed to maintaining its technological superiority in the AI chip market. The company plans to release the Blackwell Ultra system in the second half of 2025 and the next-generation Vera Rubin architecture in 2026.
In addition to hardware, Nvidia has built a robust software ecosystem comprising mainly the CUDA programming model, NVLink and Spectrum-X networking technologies, software solutions for optimizing and deploying AI models, and domain-specific libraries. With 5.9 million developers in its ecosystem, this has become a solid competitive moat, difficult for competitors to replicate.
Recent developments
In May 2025, the U.S. Department of Commerce revoked the Biden-era AI Diffusion interim rule, which was set to take effect on May 15. This is good news for Nvidia, as the rule would severely restrict the export of AI chips to several countries. With fewer restrictions on international sales, investors can expect stronger revenue guidance for the rest of fiscal 2026.
Furthermore, U.S. Treasury Secretary Scott Bessent announced a dramatic reduction in trade tensions between the U.S. and China, with U.S. tariffs on Chinese goods dropping from 145% to 30% and Chinese duties on U.S. imports dropping from 125% to 10% during the 90-day pause period. President Donald Trump is referring to this event as a "total reset" in U.S.-China relations, which may signal a more favorable international environment in the coming months.
Lower tariffs can benefit Nvidia, as the company relies extensively on the global supply chain for components and manufacturing. With reduced cost pressures, investors could see better margin projections for Nvidia in the coming quarters.
Financials and valuation
Nvidia's revenue growth trajectory has been exceptional for the past few years. The company guided for revenues of $43 billion, plus or minus 2%, in the first quarter of fiscal 2026, implying 63% to 67% year-over-year growth.
Despite this impressive growth, Nvidia currently trades at 25.4 times forward earnings, well below its five-year average of 69.2 times. This steep discount is unjustifiable in the current market environment.
Considering Nvidia's robust AI-optimized ecosystem, cutting-edge technological offerings, and historical tendency to report performance that exceeds guidance, there is a high likelihood that the company will deliver better-than-expected results in the first quarter. The company could also provide strong guidance for the second quarter of fiscal 2026. This, in turn, will boost investor confidence and could trigger either an increase in future earnings estimates, expansion in valuation multiples toward the historical averages, or both.
Hence, with its current reasonable valuation, the stock seems well positioned to soar significantly in the coming months.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
