The artificial intelligence (AI) race is well underway, but many AI stocks have taken a breather over the past few months. AI processor company Nvidia (NVDA 3.17%) is no exception. The company's shares tumbled 10% since the beginning of the year as the Trump administration threatened tariffs against trading partners, sparking worries of an economic slowdown.
That's left many investors wondering where Nvidia is headed over the next year. Predicting where any company will be in 12 months is more of a thought experiment than an exact science.
As such, let's look at two scenarios: one in which Nvidia suffers under broader economic pressures, and the other in which it stays the course, continuing to ride the AI wave it's been on.
Image source: Getty Images.
The pessimistic outlook for Nvidia
There are some darkening clouds on the U.S. economy's horizon. First, increasing tariff concerns are making companies very nervous. Many companies recently reported quarterly earnings, and some of them cited economic worries as a reason why they're forecasting slower growth for the upcoming quarters.
While inflation is still slowing, there are real concerns that as tariffs kick in they could send consumer prices higher. That's led some economists to start using the "R" word recently, with JPMorgan predicting a 40% chance of a recession this year.
Even fast-growing companies like Nvidia aren't immune to recessions, and if one materializes, the company's growth could hit the brakes. Nvidia's data center sales rose 93% in the fourth quarter to $35.6 billion, but that was slower than growth of 112% in the previous quarter. That's a minor slowdown, but some investors worry more could be on the way.
But it's not just the economy that has some investors worried. When China-based AI company DeepSeek revealed its chatbot several months ago, it left some tech experts wide-eyed. DeepSeek used a far less powerful Nvidia processor to train its model, seemingly throwing cold water on the idea that the most powerful processors are necessary for AI's growth.
While most tech companies seem committed to their data center spending, any more news that DeepSeek or other small AI start-ups can build comparable AI models for less might lead to large tech companies trying to do the same and spending less on Nvidia's most advanced processors.
Finally, another potential threat comes from the U.S. government's restriction on AI chip exports. The U.S. is trying to maintain the lead in AI, and part of the strategy is to prevent other countries from having the best chips. As mentioned, DeepSeek may have proved this theory to be incorrect, but applying the restrictions nevertheless could hurt Nvidia.
An estimated 56% of the company's revenue comes from outside the U.S., with 17% coming from China. President Donald Trump is continuing to enforce the chip export restrictions that former President Joe Biden put into place, and it's uncertain how much this could slow Nvidia's sales.
NASDAQ: NVDA
Key Data Points
The optimistic outlook for Nvidia
Don't hit that sell button just yet. Despite legitimate concerns about tariffs, chip sales, and a generally pessimistic view of tech stocks right now, some massive trends could continue to fuel Nvidia's growth over the next year and beyond.
First, even with the DeepSeek fears, tech giants have not pivoted to cheaper processors, and they haven't backed off the gas of data center investments. In fact, over the past several months, many large tech companies committed to spending hundreds of billions of dollars to build new data centers. Alphabet and Meta Platforms alone have said their combined capital expenditures (capex) spending will reach $215 billion, a 45% jump from the previous year.
Similarly, Oracle, OpenAI, and SoftBank recently said they'll spend up to $500 billion over the next four years to build AI data centers in the U.S. in a joint venture titled Stargate. This spending seems to confirm Nvidia CEO Jensen Huang's estimate that tech companies could spend up to $2 trillion on data centers over the next five years.
Nvidia is perfectly positioned to continue to benefit from this spending, as the company holds an estimated 70% to 95% of the AI accelerator market for processors. That lead can't be quickly overcome by Nvidia's rivals.
Additionally, Nvidia continues to innovate and release new products. The company's newest AI processor, the Blackwell lineup, has had the "fastest product ramp" in Nvidia's history, according to management. Blackwell sales accounted for $11 billion in sales in the fourth quarter, 31% of data center sales, showing that the company's latest processors continue to be a catalyst for growth.
And finally, consider just how big the artificial intelligence opportunity is. This isn't just a short-term trend -- companies of all sizes are reorienting themselves around it. Research from PwC estimates AI could generate $15.7 trillion of GDP globally just five years from now.
The point is that even if an economic slowdown materializes, it's highly unlikely it'll derail AI's growth. The technology is too big to ignore, and companies are too afraid of falling behind for them to back away from it in any significant way.
Which scenario is more likely?
While there are short-term concerns about the economy and tariffs, I think AI's long-term prospects will continue to fuel Nvidia's growth over the coming year and beyond.
That doesn't mean Nvidia's share price won't fall further as the market reacts to legitimate concerns, but tech companies are leaning so far into building advanced AI that Nvidia still likely has more room to grow.
Nvidia's CEO thinks future AI models will need 100 times more computing power than current ones do. Even if he's right by just a fraction of that amount, Nvidia's AI processors likely have plenty of bright days ahead.
