Nvidia’s significant rally, which began toward the end of 2022, has experienced a slowdown recently. Particularly since the beginning of July, Nvidia shares have shown some volatility, and the company’s strong fiscal 2025 second-quarter results have not sufficed to invigorate its stock market performance.
The recent volatility in Nvidia’s stock can be linked to concerns over a potential slowdown in its growth and the sustainability of artificial intelligence (AI) technology, given the substantial investments in this sector by global companies and governments. However, Nvidia’s quarterly results and optimistic guidance suggest that the company’s notable growth is poised to continue.
Additionally, analysts’ consensus on the stock price target shows a positive outlook, with Nvidia having a median 12-month price target of $150, translating to a 28% increase from current levels. The highest target among analysts is $200, indicating a potential 71% rise over the next year.
Nvidia’s dominance in AI chip technology is expected to drive the stock forward. Constellation Research, a strategic advisory firm, has set a $200 price target for Nvidia, citing the company’s significant advantages in the AI chip market, including high barriers to entry and a robust product roadmap. High switching costs also suggest that customers entrenched in Nvidia’s ecosystem are unlikely to switch to competitors. Constellation estimates that Nvidia enjoys a 24-month technology lead over its rivals in the AI graphics card market.
Nvidia’s recent quarterly results underscore its pivotal role as a supplier of graphics cards for AI model training and deployment. In the second quarter of fiscal 2025, Nvidia’s revenue surged 122% year over year to $30 billion. The data center business specifically generated $26.3 billion in revenue, marking a 154% increase from the previous year.
Jensen Huang, Nvidia’s CEO, highlighted ongoing robust demand for the company’s Hopper architecture-based graphics cards, with shipments expected to rise in the latter half of the fiscal year. This indicates Nvidia’s strong position in the AI GPU market, as the next-generation Blackwell chips are already being sampled by customers and are scheduled for full production in the fourth quarter of the fiscal year.
Nvidia’s older AI chips continue to be in demand despite the upcoming new ones, reflecting the company’s product superiority over competitors like AMD and Intel. For instance, the Nvidia Hopper H200 processor reportedly outperforms AMD’s MI300X by over 40% in AI inference applications and is more cost-effective, boosting demand for Nvidia’s chips.
Nvidia is likely to sustain its leading position in the AI chip market, leveraging healthy pricing power and robust margins. The company’s non-GAAP gross margin increased by 5 percentage points year over year to 75.1%, and adjusted earnings grew 152% year over year to $0.68 per share. This performance has led analysts to raise their earnings projections for the current and next fiscal year.
Nvidia’s earnings are projected to reach $4 per share in the next fiscal year, which could be revised upward given potential significant growth in data center revenue. Assuming earnings increase to $4 per share, this represents a 41% rise over projected fiscal 2025 earnings. If Nvidia’s price-to-earnings ratio remains at 55, the stock price could climb to $220. With Nvidia trading at a relative discount to its five-year average price-to-earnings ratio of 72, the company’s strong growth prospects in the AI chip market may well justify its valuation and drive the stock past $200 next year.
In summary, Nvidia’s strategic position in the AI chip market, coupled with its impressive growth figures, suggests that it remains a strong player with significant potential for continued upward momentum in its stock price.
