Nvidia (NVDA 1.56%) was a surefire winner for investors over the past two calendar years. The artificial intelligence (AI) giant soared more than 800% over that time as it wowed investors with its explosive earnings growth. And as they aimed to get in on the AI growth story, Nvidia seemed like the obvious choice. After all, this tech player sells the world's top-performing AI chips, a critical product for customers building AI platforms.
But earlier this year, Nvidia stock slid into the doldrums alongside the rest of the tech market. This happened as investors worried about the impact of U.S. import tariffs on the consumer and corporate earnings. The idea was that this could lead to companies reining in spending, which might include lower spending on AI, potentially bad news for Nvidia. On top of this, U.S. controls on chip exports to China also weighed on Nvidia's growth potential.
These concerns resulted in a decline of nearly 30% in Nvidia stock from the start of the year through early April. Since then, though, the stock and the general market have rebounded and even gone on to advance. Nvidia has climbed more than 60% from its low, while the S&P 500 and the Nasdaq have both recorded new record highs. Now, my prediction is that this movement isn't over, and Nvidia will soar in the second half. Let's find out why.
Image source: Getty Images.
Nvidia wasn't always an AI giant
First, though, let's take a look at the Nvidia story so far to understand what may lie ahead. Nvidia wasn't always synonymous with AI. In fact, the company's graphics processing units (GPUs) were originally most known for powering video games. But the GPU's ability to handle many tasks simultaneously prompted Nvidia to create the parallel computing platform CUDA and expand the chip's uses into other industries, including AI.
This proved to be a key move for the company, as AI has helped revenue skyrocket, as you can see in the chart below.
NVDA Revenue (Annual) data by YCharts.
Importantly, Nvidia isn't just growing revenue but also increasing profitability on sales. We can see this in gross margin figures, which have exceeded 70% in recent quarters. The one exception was in the latest quarter, when the gross margin slipped to 60% due to a charge linked to export controls -- U.S. restrictions blocked planned sales, resulting in a billion-dollar charge. Excluding the charge, though, gross margin still topped 70%.
NASDAQ: NVDA
Key Data Points
Nvidia looks reasonably priced
Now, let's consider why Nvidia stock could surge in the months ahead. One major point is that the stock today is reasonably priced at 36 times forward earnings estimates, down from more than 50 times just a few months ago. This offers Nvidia stock plenty of room to run, and recognizing this, investors may pile into the shares.
Also, general trade-related news could act as a catalyst for stock performance. So far, trade talks and deals suggest that tariff levels may not be as high as originally planned, and any confirmation of this moving forward may boost stocks, particularly growth stocks like Nvidia that thrive in strong economic environments.
News from Nvidia itself could boost the stock in the months to come, too. Considering the strong spending plans of Nvidia's customers, from Meta Platforms to Alphabet, and given that the launch of the company's Blackwell platform is rather recent, there's reason to be optimistic about revenue figures in the next quarter.
Since Nvidia has committed to an annual rhythm of chip updates, we should also monitor the rollout of the next one -- the Blackwell Ultra -- in the second half. This has just begun and may act as another positive catalyst. Investors will appreciate seeing evidence that Nvidia is able to keep up this pace of annual updates, potentially resulting in share price gains.
A booming AI market
Finally, the overall AI market is booming, with demand for infrastructure buildout continuing and the next stages of AI, such as the use of AI agents, ready to unfold. This growth environment, with the AI market forecast to reach into the trillions of dollars in a few years, is clearly positive for the leading seller of AI chips.
All this means that Nvidia, even if faced with certain hurdles -- such as a halt in chip sales to China -- has many other growth drivers propelling earnings higher right now. And this could continue well into the future. That's why I predict that Nvidia, after a first half of ups and downs, will soar in the second half of the year.
