Alphabet and Meta Platforms are two of the most successful companies the world has ever known. Combined, they are planning to spend $305 billion (at the midpoint) in capital expenditures in 2026 to expand bandwidth for artificial intelligence (AI) capabilities. This massive sum is significantly larger than last year's outlays.
Who's the biggest beneficiary of the spending these internet giants, as well as many other businesses, are taking on? It's Nvidia (NVDA +0.64%). Is this leading AI stock a buy?
Image source: Nvidia.
Falling behind is not an option
Whether you are optimistic or pessimistic about the prospects of AI and its potential impact on the economy, it isn't stopping companies from leaning in. And Nvidia wins, as capital gets directed to infrastructure projects that support greater computing capacity.
With its Hopper, Blackwell, and upcoming Ruben architectures, the business dominates the industry for data center chips, with about 90% market share. Combined with its CUDA software that enables developers to work on AI applications, Nvidia benefits from switching costs as well. As a result, it's in an enviable competitive position.
This ongoing AI build-out boom has led to tremendous growth, with Nvidia's revenue and net income surging 62% and 65%, respectively, in the third quarter of fiscal 2026 (ended Oct. 26) on a year-over-year basis. Investors should have no complaints with that type of jaw-dropping performance.
Two key risks
There are certainly risks to think about. The obvious one is that we could be in an AI bubble. The money being spent is truly mind-boggling, becoming a bigger share of GDP. And investors are increasingly concerned about what the long-term payoffs will look like. If AI businesses show any signs of pulling back, market sentiment could turn. And that could hurt Nvidia shares.
Another risk deals with Nvidia's customer base. Given how insatiable their demand is to increase technical infrastructure for their internal needs, it makes sense that they are trying to integrate upstream and bring more chip development in-house. This goal is to lessen dependence on Nvidia, which could pressure sales over time.
NASDAQ: NVDA
Key Data Points
Is this top AI stock undervalued?
Nvidia's market cap is $4.2 trillion (as of Feb. 5). In the past five years, the share price has skyrocketed 1,180%. This unbelievable gain would've turned a $10,000 starting sum into $128,000 today.
Knowing these key metrics, it's totally understandable if the initial perception is that this top AI stock must be expensive. This doesn't appear to be the case, though. Investors can buy Nvidia right now by paying a forward price-to-earnings ratio of 23.5. That's a good deal.
