As Nvidia (NASDAQ: NVDA) gears up to release its fiscal 2025 second-quarter results on August 28, the tech world is abuzz with anticipation.
Analysts are forecasting another strong performance from the semiconductor giant, with LSEG Data & Analytics predicting a 112% year-over-year increase in revenue, bringing it to an estimated $28.6 billion.
While this figure is slightly above Nvidia’s own revenue guidance of $28 billion, there are some concerns about potential margin pressures due to increased production capacity investments.
Regardless, Nvidia’s position in the AI hardware space and its valuation suggest now might be the perfect time to consider adding this stock to your portfolio. Here’s why.
1. Nvidia’s Valuation: A Smart Buy Despite Concerns
Nvidia’s meteoric rise in stock price since the end of 2022 has led some investors to question its current valuation. However, a deeper dive into the numbers reveals that Nvidia remains an attractive investment, especially for those looking for growth stocks.
Currently, Nvidia trades at 48 times its forward earnings, which might seem high at first glance. However, when you compare it to the broader U.S. technology sector’s average multiple of 46, it’s clear that Nvidia isn’t drastically overvalued relative to its peers.
But where Nvidia truly shines is in its price/earnings-to-growth (PEG) ratio, a metric that accounts for the stock’s future earnings growth.
A PEG ratio of less than 1 indicates that a stock may be undervalued, and Nvidia’s PEG ratio suggests it’s currently undervalued relative to its potential future earnings growth.
In essence, despite concerns about its valuation, Nvidia offers a promising opportunity for growth-oriented investors, particularly with the possibility of the company exceeding expectations in its upcoming earnings report.
2. The AI Hardware Ecosystem Backs Nvidia’s Growth
The health of the AI hardware market is a strong indicator of Nvidia’s potential to deliver solid results, and recent earnings reports from key players in this ecosystem paint a promising picture.
Taiwan Semiconductor Manufacturing (NYSE: TSM), commonly known as TSMC, is Nvidia’s foundry partner and plays a crucial role in its chip production.
TSMC’s recent financial performance has been robust, with a 33% year-over-year revenue increase in the second quarter of 2024.
This growth is a significant jump from the 13% increase in the first quarter, highlighting the acceleration in demand for advanced chips used in AI, which Nvidia heavily relies on.
Additionally, TSMC’s July revenue soared by 45% year-over-year, further supporting the idea that Nvidia’s own revenues could see a substantial boost.
Super Micro Computer (NASDAQ: SMCI), another key player in the AI hardware market, reported an even more impressive 143% year-over-year revenue growth in its fourth quarter of fiscal 2024.
This growth was driven by strong demand for next-generation AI GPU platforms, which are crucial for Nvidia’s operations.
The midpoint of Supermicro’s revenue guidance for the current quarter stands at $6.5 billion, a 216% increase from the previous year, suggesting that Nvidia is ramping up production for its next-gen Blackwell chips, expected to debut later in 2024.
These developments in the AI hardware market suggest that Nvidia could exceed Wall Street’s expectations in its upcoming earnings report, further solidifying its position as a leading player in the AI revolution.
3. The Capex Surge from Big Tech: A Boon for Nvidia
One of the most compelling reasons to buy Nvidia stock before August 28 is the surge in capital expenditures (capex) by major tech companies.
Industry giants like Microsoft, Meta Platforms, Alphabet, and Amazon are significantly increasing their capex to enhance their AI infrastructure, and this trend bodes well for Nvidia.
Microsoft, for example, reported a 75% increase in its fiscal 2024 capex, bringing it to nearly $56 billion, with plans to increase spending further in the current fiscal year.
This investment is aimed at expanding AI services, which will likely require a substantial number of Nvidia chips.
Similarly, Alphabet’s capex could reach $50 billion by the end of the year, up from $32 billion last year, as it continues to invest in servers and data centers that rely on Nvidia’s technology.
Meta Platforms has also raised its capex guidance for 2024 to as much as $40 billion, signaling continued strong demand for Nvidia’s AI solutions.
These companies have been loyal Nvidia customers, and their ongoing investments in AI infrastructure suggest that demand for Nvidia’s next-generation Blackwell processors will remain strong.
Nvidia itself expects demand for these new chips to outpace supply well into 2025, providing a clear runway for sustained growth.