Nvidia (NVDA 4.43%) and Meta Platforms (META 8.49%) have rocketed higher this year. But these companies are benefiting from powerful trends in data center spending and digital advertising that could send their share prices to new highs in 2025.
These stocks trade at relatively low forward price-to-earnings (P/E) ratios compared to Wall Street's 2025 earnings estimates, which could set up another monster run for investors next year. Here's how these stocks can deliver.
1. Nvidia
Nvidia continues to report phenomenal growth, as data centers transition from traditional computing to accelerated computing systems to handle artificial intelligence (AI) workloads. Demand for the company's graphics processing units (GPUs) has been off the charts, which sent the stock up 161% over the last year.
The stock's forward P/E is 28 based on next year's earnings estimate, which is too low, given Wall Street's estimate calling for 40% earnings growth next year and 36% over the next several years. The stock currently trades at a P/E of 53 on trailing-12-month earnings. If the stock is trading at the same trailing P/E and Nvidia stays on track to meet next year's earnings estimate, the share price could climb over $200.
NASDAQ: NVDA
Key Data Points
The stock pulled back over the last month amid concerns about the delay of Nvidia's new Blackwell computing platform. But demand trends look very favorable. Management expects to begin generating revenue from Blackwell in the fourth quarter, and that will be additive to demand for its current-generation chip.
Importantly, management pointed to a variety of workloads driving growth for its data center business. Customers are buying its hardware for generative AI model training and inferencing, in addition to development of cutting-edge AI models. Demand is coming from consumer internet services and thousands of start-ups building AI applications across healthcare, advertising, and education.
Nvidia stock was trading at a similar P/E in December before the stock doubled in 2024. The current valuation suggests it could repeat that performance again as it launches Blackwell.
2. Meta Platforms
Digital advertising is making up a growing share of total ad spending, and this continues to fuel growth for Facebook owner Meta Platforms. The social media stock is up more than 80% over the last 12 months, but still trades at a very attractive valuation that can support more gains in 2025.
Meta shares trade at a forward P/E of 22 on next year's earnings estimates. This is well below Meta's average P/E over the last 10 years of 38. The stock could climb as much as 50% if the stock's P/E closes some of that gap. Analysts expect Meta's earnings to grow at an annualized rate of 17% over the long term, which justifies a higher P/E.
Meta has a long runway of growth in digital advertising, and the company's investments in AI will help unlock that potential. In early 2023, Meta announced Llama, a large language model that can interpret a string of words to complete a text. It's already released Llama version 3.1, which is having an impact on its revenue growth.
NASDAQ: META
Key Data Points
Llama is the technology behind Meta AI, a personal assistant that has improved the user experience on Meta's social media platforms. Meta AI is driving higher user engagement and upside in advertising revenue. Meta's revenue grew 22% year over year in Q2.
Given the growth opportunity, Meta plans to invest heavily in AI infrastructure. Meta is a highly profitable business with $49 billion in free cash flow. It can afford to invest aggressively in AI and gain a technological edge. Given these advantages, the stock seems conservatively valued and deserving of a higher valuation.
