Nvidia (NVDA 0.71%) is probably the hottest artificial intelligence (AI) stock on the planet, with its revenue and share price soaring to records in recent quarters. As a result, you may expect this AI chip leader to come with a hefty price tag.
But Nvidia actually is a bargain buy right now. Let's find out why.
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Nvidia's AI strengths
You may know Nvidia as the world's biggest seller of graphics processing units (GPUs), the high-powered chips that help AI models to train and go on to do their job of answering questions and solving problems. But Nvidia hasn't stopped with just chips and instead built out an entire portfolio of products and services to make itself almost indispensable for any company with AI aspirations.
For example, Nvidia offers enterprise software and even platforms specific to certain industries such as automobiles and healthcare. The company also is set to benefit as users apply AI and need inferencing power or aim to better design AI agents. Nvidia is planning for future phases of growth, too, as it aims to drive the development of humanoid robots and even is exploring where AI and quantum computing may meet. The company recently said it would build a quantum computing research center in Boston, pairing quantum hardware with AI supercomputers.
All of this shows Nvidia is well positioned to play a crucial role in AI -- and even quantum computing -- and benefit from a trillion-dollar market. Analysts say today's $300 billion AI market could reach $2 trillion a few years from now.
This should add to an already impressive track record, as Nvidia has shown itself to be the star of the AI boom. Thanks to the top performance of its GPUs and related products, the company has delivered quarter after quarter of double- or triple-digit revenue growth well into the billions of dollars. Nvidia finished the latest fiscal year with triple-digit revenue gains to more than $130 billion, and in the recent period, the first fiscal quarter, revenue rose 69% to $44 billion.
Maintaining high margins
What's particularly impressive is Nvidia's ability to maintain high margins even during more costly times, such as product launches. For example, as it rolled out the new Blackwell architecture and chip in the fourth quarter, it maintained gross margin above 70%. And even as export controls on chip exports to China drove a $4.5 billion charge in the latest quarter, gross margin still came in at about 60% -- and excluding the charge met goals of the low 70% range. All of this shows Nvidia isn't only growing revenue but also is highly profitable on sales.
I particularly like Nvidia's commitment to innovation because this is key to staying ahead of rivals. Nvidia already sells the world's top performing chips so as it updates them on an annual basis as promised, it should be tough for competitors to upset its position. And Nvidia has shared an innovation and launch roadmap out to 2028 with investors, offering us a good deal of visibility on what's ahead.
So it's clear that Nvidia has dominated in the early phases of the AI boom and has what it takes to continue on this path. Another positive point is the overall AI market, as mentioned above, is on track to explode past the trillion-dollar mark. All of these elements support the idea that Nvidia will roar higher over the long term, even after its 1,500% gain over the past five years.
And that's why, at today's valuation, Nvidia looks like such a bargain. The stock is trading for 34 times forward earnings estimates, down from 50 earlier in the year, and today's level is dirt cheap considering all the company has accomplished and the potential for growth down the road. All of this makes Nvidia a no-brainer buy right now for any investor looking to benefit from the AI revolution in the quarters to come and over the long run too.
