TLDR
- Nvidia shares have rallied $1 trillion in market value over two months, gaining 45% since April low
- Stock trades at 29 times forward earnings, below its 10-year average of 34 times despite strong growth
- Major customers Microsoft, Meta, Alphabet and Amazon plan $330 billion in AI infrastructure spending by 2026
- Jefferies adds Nvidia to top stock picks, expects Blackwell chip margins to reach 70-80% this year
- 74% of long-only funds own the stock, lower than other Big Tech peers, suggesting room for more buying
Nvidia has mounted a spectacular recovery after early 2025 concerns about trade policies sent shares tumbling. The chip maker has added $1 trillion in market value over just two months.
The stock has climbed more than 45% since hitting an April low. This rally pushed Nvidia’s market capitalization to $3.4 trillion, just behind Microsoft as the world’s most valuable company.
Shares remain 8% below their January record high. But investors are growing more confident about the company’s prospects.
Last week’s earnings report helped calm key investor worries. Questions about US restrictions on China semiconductor sales and AI spending outlook got positive answers.
“Those questions have been answered in the positive for Nvidia,” said Thomas Martin from Globalt Investments. “It’s time to ramp back up your ownership.”
The stock dropped in early 2025 on trade policy fears under President Trump. Concerns about potential spending cuts by major customers also weighed on shares.
Valuation Remains Attractive
Despite the big rally, Nvidia still looks reasonably priced compared to its growth rate. The stock trades at 29 times projected earnings over the next 12 months.
This sits well below Nvidia’s 10-year average of 34 times earnings. The Nasdaq 100 trades at 26 times earnings despite much slower expected revenue growth.
Nvidia’s PEG ratio sits under 0.9, the lowest among the Magnificent Seven tech stocks. This measure compares valuation to growth expectations.
China accounts for 13% of Nvidia’s revenue, creating some trade risk. But Middle East government contracts are expected to offset potential lost sales.
The company’s product pipeline should keep competitors at bay. Manufacturing overseas does expose Nvidia to potential US tariffs.
Major Customers Keep Spending
Microsoft, Meta, Alphabet and Amazon together make up over 40% of Nvidia’s revenue. These four companies continue investing heavily in AI infrastructure.
Their combined capital spending is projected to reach $330 billion by 2026. This represents a 6% increase from estimated 2025 spending.
Amazon’s cloud services chief reiterated plans for aggressive data center expansion on Friday. This type of infrastructure requires Nvidia’s specialized chips.
“We just haven’t seen any kind of slowdown in AI spending,” said Samuel Rines from WisdomTree. He expects Nvidia’s valuation multiple could rise to the high 30s or low 40s.
Wall Street analysts remain overwhelmingly bullish on the stock. Of 78 analysts covering Nvidia, only one has a sell rating and eight rate it a hold.
The average price target sits around $170, representing 24% upside from recent levels. This consensus reflects continued confidence in the AI spending cycle.
Investment bank Jefferies added Nvidia to its top stock picks on Tuesday. Analyst Blayne Curtis expects Blackwell chip margins to reach 70-80% this year, up from 61% last quarter.
The stock was down 0.3% in premarket trading Tuesday despite the analyst upgrade. Broader market weakness and lingering trade tensions may have weighed on shares.
Long-only funds own Nvidia at a 74% rate, according to Bank of America data. This trails Amazon, Apple and Microsoft ownership rates, suggesting room for more institutional buying.
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