There’s no escaping it: The rise of artificial intelligence (AI) early last year was a boon for chipmakers Nvidia (NASDAQ: NVDA)The company’s graphics processing units (GPUs) have long been the gold standard for video games, data centers and early branches of AI.
The uptake of generative AI began in earnest in early 2023, making Nvidia the hottest ticket in town. Shares have soared nearly 700% in that time, as the company controls an estimated 92% of the data center chip market, where most generative AI resides, according to IoT Analytics. Those gains haven’t all been in a straight line, however, as Nvidia shares fell as much as 23% in the last three weeks of July.
Behind the slump lies fear that AI adoption could quickly decline. After the company generated triple-digit revenue and profit growth last year, investors were beginning to wonder if the end was in sight. The evidence has been mounting, providing a clear answer to the key investor question: Is it too late to buy Nvidia stock?
The demand for demand
Generative AI requires a lot of computing power to run the large language models (LLMs) that power the technology. That, combined with the massive amounts of data required, makes AI largely the domain of the world’s largest technology companies, which also happen to be Nvidia’s biggest customers. These tech giants have begun reporting quarterly results, giving investors insight into the state of AI adoption — and the evidence is compelling.
During the day Alphabet‘S (NASDAQ: GOOGL) (NASDAQ: GOOG) On the company’s second-quarter earnings call, CEO Sundar Pichai said of AI, “We’re in the early stages of what I see as a very transformative area … aggressively investing in a defining category.” The company’s capital expenditures (capex) of $13.2 billion were indeed higher than many had expected, and Alphabet plans capex spending of about $12 billion per quarter for the rest of the year. The spending was “overwhelmingly” devoted to the servers and data centers needed for AI.
For fiscal quarter 4 of 2024 (ended June 30), Microsoft (NASDAQ: MSFT) Also admitted to an AI-centric spending spree, with capex of $19 billion. CFO Amy Hood noted that “cloud and AI-related spending represents nearly all of our total capital expenditures.” Hood went on to say that capex for fiscal 2025 “is expected to be higher than fiscal 2024.”
Meta platforms (NASDAQ: META) spent more than $8.1 billion on capital expenditures in the second quarter and now forecasts the company will spend $37 billion to $40 billion for the full year, with “significant capital expenditure growth in 2025 to support our AI research and product development efforts,” said CFO Susan Li.
Nvidia’s Biggest Customers
These capex spending numbers and the accompanying management commentary make it clear that Big Tech plans to continue spending heavily on AI. Furthermore, the fact that a large portion of this spending will be devoted to servers and data centers suggests that Nvidia will be the beneficiary of a large portion of this spending.
While Nvidia won’t reveal the identities of its biggest customers, Wall Street has done some digging. Analysts from Bloomberg and Barclays crunched the numbers and concluded that Nvidia’s four largest customers, accounting for about 40% of revenue, are:
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Microsoft: 15%
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Meta platforms: 13%
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Amazon: 6.2%
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Alphabet: 5.8%
Three out of four companies have been clear about their AI spending. By the time you read this, Amazon’s results will be out. I have no doubt that Amazon will also spend heavily on AI.
The proof is in the pudding
The past year has been a whirlwind for Nvidia investors. After generating triple-digit growth last year, the company followed that up with record results to start the current year. For the first quarter of its fiscal 2025 (ending April 28), Nvidia delivered record revenue, growing 262% year over year to $26 billion, fueled by a record $22.6 billion in data center revenue, up 427%. Profits also skyrocketed, as diluted earnings per share (EPS) of $5.98 jumped 629%.
Nvidia is expected to report its second-quarter results after the market closes on August 28. If comments from its Big Tech customers are anything to go by, Nvidia should have another strong showing under its belt.
The company is forecasting revenue of $28 billion, which would represent year-over-year growth of 107%, with a corresponding increase in profitability. It’s worth noting that Nvidia has a history of beating its own forecast, so the results could be higher.
Finally, with earnings estimates of around 38 times, Nvidia trades at a slight premium, but given the company’s triple-digit growth, that’s not surprising.
In my opinion, the evidence is clear: Nvidia stock is still a bargain.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Is It Too Late to Buy Nvidia Stock? Mounting Evidence Provides a Clear Answer was originally published by The Motley Fool
