Nvidia (NVDA +1.73%) emerged as the most closely watched artificial intelligence (AI) stock thanks to its soaring growth, and its annual GTC conference has also become one of the top AI events for analysts, industry insiders, and investors to watch.
The AI chip leader regularly touts new products and achievements at the conference, and investors pay close attention to CEO Jensen Huang's keynote address. In his keynote on Tuesday, Huang had a few key nuggets to share with investors.
He said that the Blackwell platform is now in full production, and introduced the roadmap beyond Blackwell, with Rubin coming next year, followed by Feynman in 2028. He also said the company is partnering with General Motors to build self-driving cars as it envisions playing a key role in robotics and autonomous vehicles.
However, at a time when Nvidia is trading at a substantial discount to its all-time high on concerns about macroeconomic growth, questions about the impact from DeepSeek, and some doubts about the return on investment from AI spending, Huang gave a key forecast that should reassure investors in Nvidia and the rest of the AI sector.
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$1 trillion in AI spending
The Nvidia chief presented a chart based on analyst forecasts, showing expected data center capital expenditures growing from roughly $250 billion in 2023 to $500 billion this year to $1 trillion by 2028.
As Huang explained in the presentation, "I've said before that I expect data center buildout to reach $1 trillion, and I'm fairly certain that we're going to reach that very soon." According to the Nvidia CEO, that growth is driven by accelerated computing, an area Nvidia has long focused on, and what he called "an increase in recognition that the future of software requires capital investment" because technologies like machine learning and large language models are driving larger AI capabilities.
The vast majority of Nvidia's revenue comes from the data center and it continues to dominate the market for data center GPUs (graphics processing units), which are the building blocks of AI applications like chatbots and AI agents.
Nvidia's future is directly tied to data center capex spending, and part of the bear case against the stock is that capex spending tends to be cyclical and is therefore vulnerable to a recession. Ninety-one percent of Nvidia's revenue came from the data center in its fourth quarter, and it's the company's fastest-growing category as well. If global data center capital expenditures double between 2025 and 2028, Nvidia's data center revenue should double as well, or grow even faster as the company adds value through new products and new platforms like Rubin and Feynman.
NASDAQ: NVDA
Key Data Points
Is Nvidia a buy?
Nvidia sold off following its fourth-quarter earnings report, despite posting 78% revenue growth, beating estimates, and offering strong guidance.
In a weakening macroeconomic environment, investor enthusiasm for the AI leader seems to be waning, but if Huang is correct, there's still a lot of growth left for Nvidia. In addition, the projected data center growth doesn't include edge applications in products like robotics and autonomous vehicles, which could be major revenue drivers for Nvidia down the road.
After the recent sell-off, Nvidia stock now trades at a price-to-earnings ratio of 39 and a forward P/E of less than 26 as analysts are forecasting 50% growth in earnings per share this year. At that valuation, Nvidia is essentially trading on par with the S&P 500. That makes the stock look like a bargain, given its momentum in AI, its current growth, and the forecasts for growth in data center capex.
At this point, the pessimism around Nvidia stock seems overdone. Investors don't need data center capex to reach $1 trillion by 2028 for Nvidia to be a winner. At the current valuation, it only needs to outgrow the S&P 500 starting next year and beyond. That should be a low bar for a company whose revenue is still nearly doubling, that is driving advances across AI, and that is likely to remain at the forefront of technology for the foreseeable future, if not the next decade or longer.
Investors shrugged off Huang's keynote with the stock falling on Tuesday, but that shouldn't be a surprise at this point. Based on the growth in data center spending, long-term investors can look past the current hand-wringing over trade wars and consumer spending and be confident that Nvidia will continue to be a winner.
