Nvidia (NVDA 1.97%) is currently down by more than 10% from its all-time high, but it's bound to recoup all those losses by the end of the year. The company is too deeply integrated into the artificial intelligence (AI) boom to lose momentum anytime soon, and its valuation has suddenly become quite cheap.
A strong earnings report on Aug. 26 may be enough to break the current slide and help Nvidia reclaim all-time highs. However, Nvidia looks too good at current levels to wait until earnings.
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Nvidia still has a practical monopoly on AI chips
Nvidia isn't the only AI chipmaker. However, its quarterly revenue exceeds the combined quarterly revenue of Broadcom, Advanced Micro Devices, and Intel. Nvidia also grows faster than all those companies, while having higher net profit margins.
NASDAQ: NVDA
Key Data Points
AI chip demand hasn't slowed down. It's only heating up. Nvidia's 85% year-over-year revenue growth in its fiscal 2027 first quarter shows that hyperscalers are still lining up to buy Nvidia's chips.
Nvidia's graphics processing units (GPUs) are known as the superior chips, and that gives the company tremendous pricing power. Two years ago, Nvidia CEO Jensen Huang told investors that it would be cheaper for hyperscalers to buy Nvidia chips than if competitors gave away their chips for free. If you compare Nvidia's financial results to its peers', his comments stand. Hyperscalers are willing to endure higher prices and multi-month wait times for Nvidia chips, even when competitors can offer cheaper chips and shorter wait times.
It's very hard to find a company with the type of moat that Nvidia has, especially in an industry that is growing as quickly as AI chips.
Artificial intelligence still has multiple years of hyper-growth left
Nvidia's biggest customers are reporting higher profits and taking out bonds to buy more chips. AI models like ChatGPT and Gemini have become mainstream products, but that's just the beginning.
Physical AI resources, like humanoid robots and self-driving vehicles, are gradually gaining traction. However, these products can go parabolic in a hurry, just as AI model ChatGPT showed investors. That AI model reached 1 billion monthly active users faster than any app in history, including famed social networks.
Similar trajectories may take place with physical AI, and those products will require Nvidia chips. However, it isn't just physical AI, either. Nvidia is already investing in new multi-year growth cycles, such as AI-RAN and data centers in space.
AI-RAN is closer to commercialization and optimizes cell towers so that they can support AI traffic generated by smartphones. It essentially turns cell towers into micro data centers. Data centers in space are a bit further away, but Nvidia is already making the necessary hires to get a jump-start on the opportunity.
Nvidia has turned itself into the preferred chipmaker, and as each of these opportunities grows, the chipmaker should continue to expand its market share. Combine that with a 24 forward price-to-earnings ratio, and it's difficult to see why the stock wouldn't set a new high by the end of the year.
