Prediction: Nvidia stock will rise sharply by 2025. Here’s why.

After a rapid run since the beginning of 2023, Nvidia (NVDA -2.13%) hit a wall. The stock is up 730% since the beginning of last year (as of this writing), but over the past three months Nvidia has stopped with a decline of about 4%.

A number of factors weighed on the stock. Fears about a possible slowdown in generative artificial intelligence (AI) adoption, rumors of a delayed release of Nvidia’s next-generation Blackwell platform, concerns about a decline in the company’s gross margin and a high valuation have some investors fearing the stock has outgrown itself .

However, a quick look at the available evidence shows that while these concerns are understandable, they are also largely unfounded. I believe Nvidia still has a lot of room for improvement, and I expect the stock to continue hitting new all-time highs through 2025. Here’s why.

A speed boost in the introduction of AI?

The increasing adoption of AI has helped fuel the rise of tech stocks since the start of 2023, but investors are wondering whether this rapid pace could continue. There is evidence that this is possible.

To complete the second quarter of the calendar, alphabet, Microsoft, AmazonAnd Metaplatforms all announced plans to increase capital expenditures (capex) for the remainder of 2024, while also laying out plans for significant increases next year. The vast majority of this spending will go toward equipping the servers and data centers needed to support AI are required. Since these tech titans are Nvidia’s biggest customers, this suggests that the company’s growth streak continues.

Taking a step back and looking at the bigger picture can also provide context. According to estimates by management consultancy McKinsey & Company, generative AI is expected to contribute between $2.6 and $4.4 trillion to the global economy in the coming years. This suggests that AI adoption will continue for the foreseeable future.

Blackwell is on the right track

In early August, reports surfaced that Nvidia’s next-generation Blackwell chips would be delayed by up to three months due to production issues. The stock slipped on the reports as investors feared the worst.

When Nvidia released its quarterly results at the end of August, CFO Colette Kress put the matter to rest:

In the second quarter, we delivered customer samples of our Blackwell architecture. We made a change to the Blackwell GPU mask to improve production yield. Production ramp-up at Blackwell is expected to begin in the fourth quarter and continue through fiscal year 2026. In the fourth quarter, we expect Blackwell to generate billions of dollars in revenue.

This suggests that the reported delays were much ado about nothing.

Fears of slowing growth are short-sighted

When Nvidia announced its fiscal 2025 second quarter results (ending July 28), there was a lot to be happy about. The company achieved record quarterly revenue, record quarterly data center revenue and solid profits. However, there were two issues that investors seemed to be focusing on with Nvidia’s otherwise stellar results.

The first was the company’s gross margin, which declined from a record 78.4% in the first quarter to 75.1% in the second quarter. During the earnings call, CFO Colette Kress suggested that a combination of product mix and inventory constraints related to the Blackwell launch were the culprits.

However, the company forecasts gross margins in the mid-70% range for the remainder of the year. That’s below the record results of the first quarter, but it’s still there far ahead from Nvidia’s 10-year average gross margin of 62%.

Data from YCharts

The other issue that seemed to unnerve some investors was Nvidia’s guidance for its fiscal third quarter, which ends at the end of October. The company expects record sales of $32.5 billion, which would represent growth of 79%. That would be a slowdown from the triple-digit growth Nvidia posted in the previous five quarters, but it’s still a notable achievement.

Smart investors knew that the company’s growth rate would eventually slow, especially as Nvidia struggled with tough competition last year. However, the company’s revenue growth is still exceptional and should be viewed in that context.

Not as expensive as you might think

One of the biggest problems weighing on Nvidia is the notion that the stock is exorbitantly expensive. This view is certainly understandable considering the stock currently sells for 57 times earnings, compared to a price-to-earnings ratio of 30 for the stock S&P 500. However, investors willing to take a step back will find that Nvidia isn’t as expensive as it might seem at first glance.

A quick look at the stock chart reveals that Nvidia is actually trading slightly lower than its average P/E ratio over the last decade. It’s also worth noting that Nvidia stock has gained more than 25,000% over the past 10 years, evidence that the stock has and continues to deserve a premium.

Data from YCharts

However, a look into the future suggests that the stock is even cheaper. For the coming fiscal year, which begins at the end of January, Wall Street is forecasting earnings per share of $4.02. That means Nvidia is currently trading at less than 29 times forward earnings (as of this writing), which is a bargain, especially given the company’s continued growth prospects.

An objective view

Given the rise in Nvidia stock since the start of last year, it’s understandable that investors are taking a step back to assess the situation. Nevertheless, it is clear that the factors that have weighed on the stock are nothing.

Nvidia’s biggest customers continue to spend big on its products, its next-generation platform is on track, its gross margin remains near a record high, and its valuation is nowhere near as high as it seems at first glance.

This all suggests that Nvidia has clear future prospects, and I expect the stock to continue reaching new heights well into 2025.