Nvidia: Fear Creates Opportunity, Price Declines Accelerate
As the excitement around artificial intelligence (AI) has faded this year (particularly as uncertainty from Trump tariffs takes center stage), top growth stocks have also faded (see table) as low-beta and high-dividend stocks have dominated. This report reviews Nvidia’s business, growth, valuation and risks, and then concludes with a strong opinion on whether this year’s fearful growth-stock selloff has created an opportunity (or if there is still a lot more pain to come).
2025 Q1: Flight to Safety
Before getting into the details on Nvidia, here is a look at the 15 best and worst performing stocks in the S&P 100 so far this year.
As you can see, low-beta high-dividend stocks have posted gains, while high-growth stocks (like Nvidia) have sold off hard.
The selloff comes from market uncertainty around president Trump’s draconian tariff policies (the market hates uncertainty), and because growth stocks posted such strong performance in 2023 and 2024 (a lot of people believed growth stocks were overdue for a selloff).
Nvidia stands out in the table because of its low valuation as compared to its high grow, particularly after the selloff and relative to other names in the table.
About Nvidia:
NVIDIA (founded in 1993, headquartered in Santa Clara, California), is best known for designing GPUs, which were initially developed for gaming but have since expanded into diverse applications, particularly related to the cloud (data centers) and AI megatrend.
Specifically, Nvidia GPUs are critical for parallel processing, making them ideal for AI workloads. And its CUDA software platform enhances GPU programmability and gives the company a competitive advantage (i.e. a moat).
Market Share:
Nvidia dominates the GPU market for gaming (its GeForce line has captured 80-90% of the market, with Advanced Micro Devices (AMD) as the primary competitor). And in the data center GPU market (which is critical for AI), Nvidia has captured around 90%+ market share.
For perspective, Nvidia A100 and H100 GPUs are the “gold standard” for AI training, and they are used by leading cloud providers, including Amazon Web Services (AMZN), Microsoft Azure (MSFT), and Google Cloud (GOOGL).
Competitors like AMD (with its Instinct GPUs) and Intel (with its Gaudi chips) are attempting to challenge Nvidia, but they are far behind in both performance and ecosystem development. Additionally, Nvidia has an early mover advantage in AI hardware (with companies such as Super Micro Computer (SMCI), for example).
Total Addressable Market (TAM)
Nvidia’s TAM is massive (and expanding) thanks to the AI megatrend (and related technologies). For example, the AI hardware market (i.e. data centers) is projected to grow from $50 billion in 2024 to over $200 billion by 2030 (and Nvidia is leading the way).
In total (including not just data centers), Nvidia’s TAM is estimated to be in the range of $300-400 billion by the end of this decade (again, with AI being the largest and fastest-growing segment). This massive TAM provides a major tailwind for Nvidia’s long-term growth trajectory.
Growth
Nvidia’s growth is being driven primarily by the AI megatrend. In particular, AI workloads require massive compute power, and Nvidia GPUs are the widely preferred choice. As you can see in the earlier table, Nvidia’s sales and earnings are expected to continue to grow rapidly, outpacing peers (in most cases dramatically). What’s more, despite recent market volatility, the AI megatrend is still in its early innings (a very good thing for Nvidia—the clear AI GPU leader).
Valuation
Nvidia stands out in the earlier table as attractive, especially considering its high-growth trajectory. For example, its 1.2x PEG ratio (price-to-earnings versus growth) is compelling, and so is its 18.8x forward price-to-earnings ratio. It also has dramatic share price upside potential (+63.5%) as per Wall Street analysts (see earlier table). And all of these financial metrics are underpinned by the ongoing AI megatrend.
Risks
Market Volatility: With a high beta (2.3), Nvidia is a volatile stocks (e.g. the shares are very sensitive to market swings, such as this year). The recent pullback is not the first (or the largest) and it will not be the last price pullback. High volatility is often the price you pay for the best long-term return opportunities.
Competition: Nvidia doesn’t really have much competition right now (despite AMD and Intel ramping up their AI chip offerings, and cloud providers like AWS developing custom). And while Nvidia’s ecosystem moat is strong, increased competition could eventually pressure margins.
The AI Cycle: The AI megatrend has driven Nvidia’s growth, but if AI adoption slows or fails to meet (high) expectations, demand for Nvidia chips could slow. The good news is that despite cyclicality, the AI megatrend is a long-term disruptor, and Nvidia is still the dominant leader.
Regulatory Risks: US and Chinese regulators have increased scrutiny on Nvidia (considering its dominant market leadership position). For example, export restrictions on chips to China have already impacted revenues, and further regulations could pose challenges.
Trump Tariffs: The market hates uncertainty, and increasing concerns that Trump tariffs could disrupt supply chains have put downward pressure on stock prices (including Nvidia’s) In particular, Nvidia relies on manufacturing partners like TSMC in Taiwan. Any rising geopolitical tensions could add further pressure on the shares.
Conclusion
Despite Nvidia’s dominant position in GPUs, and despite the powerful long-term tailwinds of the AI megatrend, we still don’t know how much lower the shares may fall in the near term (as macroeconomic pressures, Trump tariffs and the shift from growth stocks to low-beta stocks continues).
The good news is that fear creates opportunity, and despite near-term volatility, Nvidia’s business remains healthy, its valuation is now more attractive, and in the long-term these shares are likely eventually going much higher.
Rather than trying to perfectly time the bottom in this near-term selloff, Nvidia remains long-term attractive, and the shares are absolutely worth considering for a place in your prudently-diversified, long-term, growth-focused portfolio.
*Long Nvidia.