Is Nvidia stock finished after a 2,300% gain?

Recent years have seen an unprecedented expansion of artificial intelligence (AI) into various aspects of life. Companies operating in this space and benefiting from this expansion are sure to be at the forefront of the next big thing in AI applications.

From all the key players Nvidia (NVDA -1.68%) is clearly the one to keep an eye on, having seen a stunning 2,300% rise over the last five years (at the time of writing), cementing its position as one of the most notable growth stories in tech. Importantly, investors have been eager to capitalize on its success as the company rides the AI ​​wave with chips for data centers and graphics.

The stock’s one-year return of 199% is evidence of its continued relevance in the artificial intelligence space, driven by explosive demand for GPUs (graphics processing units) that power AI models. These have now become an integral part of industries such as cloud computing, finance and healthcare. As companies look to integrate AI into their operations, Nvidia’s products are in high demand, and the company has positioned itself well to be the primary supplier for the graphics side of the infrastructure.

But with the stock now trading near all-time highs and at a reasonable premium, the question is whether Nvidia stock’s rally is over for a while, or is there still plenty of room for upside?

Supply-demand equation

As Fool writer Adria Cimino pointed out, Nvidia has an 80% market share for its products. This is a pretty pleasant place.

Nvidia’s graphics cards are the backbone of many AI systems, and as the demand for AI technology increases, the need for these graphics cards becomes even more useful. Digitaltrends.com has warned that there will likely be a GPU shortage, especially for gamers. This imbalance between supply and demand presents Nvidia with a unique opportunity. As long as demand for AI and machine learning chips continues to grow and supply remains limited, this stock should remain strong. This is clearly evident in how quickly Nvidia’s revenue increased in fiscal 2024 compared to fiscal 2023. Companies need their GPUs.

The financial figures continue to be impressive

The company’s most recent stats are what you dream of in a growth stock. On a GAAP basis, Nvidia reported 94% year-over-year revenue growth to $35.08 billion in its most recent quarter. Nvidia also reported 111% year-over-year profit growth to $0.78 per diluted share, which is equivalent to about $19.3 billion.

I often place a lot of emphasis on earnings, and rightly so, because they are the backbone of long-term stock performance. In Nvidia’s case, I certainly still care about the earnings potential and the overall revenue growth potential, as the two coincide over the long term. The chart below confirms: Over the past five years, Nvidia’s stock price has actually grown almost in lockstep with GAAP earnings per share.

NVDA data from YCharts.

But one of the big things I liked about Nvidia’s third-quarter results were the GAAP margin estimates for the fourth quarter, which the company expects to be 73%. This is a high margin business and I love it!

Is Nvidia’s ride over?

The short answer? Absolutely not. To repeat my earlier point: the unprecedented expansion of AI means it’s not going anywhere.

The factors here are diverse. If you look at Nvidia’s third quarter press release, you’ll see announcements about new areas of growth, including the launch of a supercomputer in Denmark running on over 1,500 Nvidia GPUs and the launch of an AI air platform, which has already begun T Mobile, Ericsson And Nokiaalong with Nvidia computing, used in new Volvo SUVs, for example. These are just a few examples from a very broad list of areas where Nvidia’s resources are being deployed.

Looking ahead, Wall Street analysts expect Nvidia to end fiscal 2025 at $2.95 per share. That would give a forward P/E ratio of 47.2 times earnings for fiscal year 2025. Well, considering that something like Tesla is trading at almost 100 times earnings, or cavaa stock I love by the way is trading at over 300x earnings, a 47x earnings premium for Nvidia stock doesn’t seem that extreme given the long term potential and their current dominance in the space.

This is a company that is far from over. In fact, Nvidia’s best years are very likely to lie in the future. My recommendation is not to be afraid to buy at current levels.