(Bloomberg) – Nvidia Corp.’s Market Value of $3 trillion in the two years since ChatGPT helped spark an AI frenzy is larger than any stock market rally in history in such a short span of time. But the landscape is changing for the chipmaker.
Competitors and customers are stepping up efforts to capture a larger share of the artificial intelligence chip market. The industry’s booming revenue growth is slowing. The Biden White House is seeking to limit the sale of Nvidia’s most advanced chips abroad, although it’s unclear how President-elect Donald Trump’s new administration will handle that.
Does that sound scary? None of these risks are stopping investors from betting that Nvidia’s rally could add hundreds of billions of dollars more to market value in 2025, as the deluge of AI computing spending continues to gain momentum. magnitude.
“I’m not concerned that we’ve seen a spike at Nvidia,” said Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management. “There is still more growth to be had, although we should also see more volatility. The AI revolution will be a long road strewn with pitfalls.
This turmoil was on display recently, with Nvidia shares tumbling after a presentation from CEO Jensen Huang failed to meet investors’ high expectations. The stock has fallen for five straight sessions, losing 12% since hitting a record high on Jan. 6, as of Tuesday’s close. It rose 1.7% on Wednesday.
Investors say these kinds of fluctuations come with the territory.
“Nvidia stock will always be much more volatile than the market,” said Joanne Feeney, portfolio manager and partner at Advisors Capital Management, which raised its price target on the stock earlier this week. “We see several years of well-above-average earnings growth, and we view this as explaining and supporting the valuation.”
Nvidia shares are expected to rise about 30% over the coming year, according to the average of analyst price targets compiled by Bloomberg. That would give the chipmaker a market value of more than $4 trillion, potentially eclipsing its closest peers Apple Inc. and Microsoft Corp. Its revenue is expected to reach $129 billion in its current fiscal year, which ends Jan. 30, up from $27 billion. two years ago.
That said, many potential dangers lie ahead. Here’s a look at the biggest issues Nvidia will face in the coming year:
AI spending
Nvidia’s rebound ultimately depends on demand for AI services. Nearly half of its revenue comes from a handful of tech giants rushing to add computing capacity. Capital spending by Microsoft, Amazon.com Inc., Alphabet Inc. and Meta Platforms Inc. is expected to total $257 billion in the current fiscal year, up from $209 billion in 2024. Of course, These plans could change if companies and their customers don’t generate the big sales they expected from AI.
“At some point, we will need to see new applications drive revenue acceleration for other companies for this investment to continue,” said Gil Luria, head of technology research at DA Davidson and one of eight analysts on 78 tracked by Bloomberg which has no buy rating on the shares.
Outside of hardware makers like Nvidia, the most visible growth in AI revenue comes from large web service providers like Amazon, Google Cloud and Microsoft’s Azure. However, this amount remains relatively small compared to what companies spend to develop the technology.
So far, few of the tech giants’ cloud computing customers are seeing significant revenue growth from AI. Shares of Salesforce.com Inc. have rebounded on high expectations for new AI offerings, but the customer relationship management software company has yet to see much of an increase in sales. Palantir Technologies Inc., which makes data analytics software, said its AI services are driving revenue growth.
“It is imperative that hyperscaler customers start generating meaningful returns,” Luria said.
Competition
Nvidia has a near-monopoly on AI accelerators and is trying to stay ahead of the competition by accelerating the pace of rolling out new lines of chips. Its latest, Blackwell, initially faced manufacturing issues that slowed its release. But Huang said production was now full and would begin shipping in the current quarter, adding that demand for Blackwell was “very strong” and expected to exceed supply for several quarters.
Advanced Micro Devices Inc. is probably Nvidia’s closest competitor. But its projected AI accelerator sales of more than $5 billion in 2024 are just a fraction of Nvidia’s expected $114 billion in data center revenue in its current fiscal year. Intel Corp., which is in the midst of a difficult turnaround, is further behind schedule as weaker-than-expected orders for AI accelerators have led to sales that the company says will fall short of its goal of 500 million dollars for 2024.
Meanwhile, chipmakers Broadcom Inc. and Marvell Technology Inc. are gaining momentum in sales of custom semiconductors and networking components used in data centers. Broadcom predicted in December that the market for AI components it designs would reach as much as $90 billion by fiscal 2027, sending its shares soaring and raising fears that so-called ASIC chips could take share. at Nvidia.
However, these custom chips are unlikely to do much harm to Nvidia given Blackwell’s significant technological advancements, according to Morgan Stanley analysts led by Joseph Moore.
“Competing directly with Nvidia on cluster-level specifications will likely remain a challenge,” they wrote in December.
And then there are the chipmaker’s biggest customers, who are scrambling to develop their own semiconductors to avoid Nvidia’s high prices. Amazon has started shipping the second generation of Trainium, which it aims to group into clusters of up to 100,000 chips. Alphabet’s Google began building an AI chip a decade ago, and the latest edition is expected to be widely available this year. Microsoft Corp. announced an accelerator called Maia and a central processing unit in late 2023.
Assessment
How much investors will pay for Nvidia’s stock depends on its growth prospects. As customers are willing to spend more on hardware and the competition continues to catch up, this outlook looks bright at the moment. The shares are valued at nearly 31 times projected earnings over the next 12 months, below the past decade’s average of 34 times, according to data compiled by Bloomberg.
Still, that valuation requires Nvidia’s profits to continue to explode at a time when growth is slowing and rising costs related to Blackwell’s development are expected to weigh on margins. Nvidia’s sales are expected to soar 112% in fiscal 2025, 53% in fiscal 2026, and 21% in fiscal 2027. Its gross margin is expected to fall as much as 73% in during the current quarter, compared to 75% during the previous period. Nvidia said this in November. However, he expects margins to rebound when production increases.
For a company growing as fast as Nvidia, all of this represents a fair price, according to Scott Yuschak, managing director of equity strategy at Truist Advisory Services.
“There is still a lot of growth left for Nvidia in 2025 and there are still reasons to be interested in the stock,” Yuschak said. “However, this figure depends on increasingly significant spending. If there is any sign of a slowdown in AI spending, the price investors are willing to pay for Nvidia stock will decline. »
Top tech stories
The United States plans to unveil more regulations aimed at preventing advanced chips made by Taiwan Semiconductor Manufacturing Co. and other producers from flowing to China, part of a series of measures introduced by the administration Biden during his final days in office.
Elon Musk defrauded Twitter shareholders of more than $150 million by waiting too long to disclose his growing stake in the company as he prepared a takeover bid, the U.S. Securities and Exchange Commission claimed. United in a lawsuit filed days before the Trump administration took over.
SpaceX has launched two commercial satellites carrying lunar rovers as competition heats up in the private sector race to the Moon.
Alphabet Inc. CEO Sundar Pichai is joining Silicon Valley executives bidding for a London-based cricket team, according to people familiar with the matter.
Synthesia, an artificial intelligence startup that allows businesses to produce realistic video avatars, has raised $180 million in a funding round, making it one of the UK’s largest AI companies.
Intel Corp., the once-dominant chipmaker struggling to revive its business and finances, plans to spin off its venture capital arm into a separate fund with a new name.
Earnings expected Wednesday
–With help from Ryan Vlastelica, Subrat Patnaik and Brandon Harden.
(Updates for market opening.)
Most read from Bloomberg Businessweek
©2025 Bloomberg LP
