Nvidia (NVDA 2.96%) has been one of the best stocks to ride the artificial intelligence (AI) boom. Its stock has rocketed 1,200% since bottoming out in the 2022 bear market. That performance reflects its dominant position in the chip industry selling powerful graphics processing units (GPUs) to data centers.
Yet despite its run, the reason I can't stop thinking about the investment opportunity with this amazing growth stock is how much profit Nvidia's business is generating. Over the last year, Nvidia earned $86 billion in profit on $165 billion of revenue. Further growth in its data center business should drive significant gains for the stock in 2026 based on its current valuation.
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Nvidia's profitability makes it a solid investment
The consensus analyst estimate calls for Nvidia's fiscal Q3 revenue to grow 56% year over year. With leading cloud service providers seeing demand for AI cloud services outpacing available compute capacity, Nvidia shouldn't have any problem selling every chip it makes for the foreseeable future. Early estimates for next year project the company's revenue growing another 38% to reach $287 billion. This aligns with management's long-term expectation for data center spending to reach between $3 trillion and $4 trillion by 2030.
This growing demand reinforces Nvidia's competitive lead in the GPU market. Nvidia's data center GPUs sell for tens of thousands of dollars, which along with other valued-added solutions it offers, allows the company to price its products to earn high margins.
NASDAQ: NVDA
Key Data Points
Nvidia has a long-term road map for new chips going out to 2028. This is noteworthy because Nvidia maintains tight relationships with its customers. It designs chips with their feedback and needs in mind. So, product planning this far out should give investors a good hint about the long-term demand curve for its data center business.
Nvidia's enormous profitability has turned into a competitive advantage. This is fueling investment in new products, where Nvidia is widening its influence across the tech sector. It was recently announced that Nvidia will invest $5 billion in Intel stock, and in return, Intel will build Nvidia-custom x86 central processing units (CPUs) for the GPU maker's AI infrastructure platforms.
The bonus reason I continue to think about and hold the stock in my portfolio is that it is still underpriced. The stock trades at just 29 times next year's consensus earnings estimate. This attractive valuation is potentially setting up another year of market-beating returns.
