Nvidia (NVDA +4.30%) reported financial results for its fiscal 2025 fourth quarter (ended Jan. 26), and the business exceeded Wall Street expectations. Revenue of $39.3 billion and adjusted earnings per share of $0.89 came in ahead of estimates. Nonetheless, shares were down on the morning following the announcement.
Maybe the numbers still weren't as good as the market hoped, which isn't surprising given the amount of excitement surrounding Nvidia. The current 15% dip off the peak share price might draw attention from opportunistic investors.
Is Nvidia a buy now? Let's take a closer look at the bull and bear cases for this top artificial intelligence (AI) stock before coming to a more informed decision.
Nvidia's bull case
The most obvious bull argument for Nvidia is its unbelievable growth trajectory. Revenue jumped 114% higher in fiscal 2025. And in the past five years, that top-line figure is up a ridiculous 12-fold. The company's powerful graphics processing units (GPU) are seeing tremendous demand, particularly from cloud service providers.
And management is optimistic about the potential for the new architecture, known for better reasoning and inference. "The demand for Blackwell is extraordinary," CEO Jensen Huang said on the Q4 2025 earnings call. Nvidia is in a favorable position as the picks-and-shovels infrastructure provider in the AI boom.
Growth is impressive, but what's equally awe-inspiring is the bottom line. Nvidia is incredibly profitable. Its operating margin came in at 61% in the latest fiscal quarter. That's up from 39% just three years ago. There is clearly some scale advantage here, as expenses increase at a slower pace than sales.
Owning companies that possess an economic moat is a smart move, as this key trait helps protect against competitive threats. Nvidia arguably benefits from intangible assets with the technical know-how that supports its ability to innovate and launch new products and services in the GPU market.
What's more, customers likely have switching costs, particularly with the CUDA software. Once these customers install Nvidia GPUs and get onboarded with the computing platform and programming model, it becomes more of a headache to change providers.
NASDAQ: NVDA
Key Data Points
Nvidia's bear case
Investors can gain a thorough understanding about a stock's merits by looking at all sides -- including the bear case. I think there are a few main points to highlight here.
The release of the DeepSeek-R1 from China shook the industry. The worry is that if AI models can be run much more cheaply -- as DeepSeek developers claim -- then why spend so much on Nvidia's expensive GPUs? One implication is that maybe revenue and profits will face mounting pressure.
The majority of Nvidia's revenue comes from a handful of accounts. Intense customer concentration hasn't been an issue thus far, as these so-called hyperscalers have unlimited financial resources and an incentive not to get left behind in the AI race.
But these businesses are developing their own chips to power AI capabilities, essentially aiming to move upstream in the value chain to bring things in-house as opposed to outsourcing. It's anyone's guess how long it takes for these customers to move away from Nvidia. But that risk is certainly something to keep in mind, and could limit Nvidia's long-term revenue potential.
As of this writing, Nvidia shares trade at a forward P/E ratio of 28.1. Given the company's strong growth and profitability, this valuation might be reasonable for some investors. Wall Street consensus analyst estimates call for sales to skyrocket 111% over the next three fiscal years. This robust outlook could justify the valuation. There's a lot of uncertainty, though.
The AI industry is changing so rapidly that no one knows how things are going to look even just 12 or 24 months from now. And because spending on AI-related investments in aggregate is becoming so massive, what happens in an economic downturn? There's a chance that Nvidia will see plummeting demand.
This company's rise has been spectacular. However, I believe the bear case holds more weight, so I don't think the stock is a smart buy.
