TLDR
- Nvidia stock is down 15% in 2025 but showing signs of recovery
- Major tech companies (Meta, Microsoft, Alphabet) continue heavy AI infrastructure spending
- Nvidia maintains dominance with estimated 77% of AI semiconductor wafer production in 2025
- New H20 chip for Chinese market coming soon despite export restrictions
- Stock trades at attractive 38x trailing earnings with 48% projected earnings growth this year
Nvidia, the AI chip giant, has faced headwinds in 2025 with shares down 15% year-to-date. But recent developments suggest this selloff might be overblown, with the company maintaining its dominant position in the AI hardware market.
The stock’s decline can be attributed to several factors. These include fears about reduced AI hardware spending following DeepSeek’s cost-effective AI model, uncertainty from President Trump’s tariffs, and concerns about rising competition.
However, AI spending across the tech sector remains robust. When Nvidia released its fiscal 2025 fourth quarter results in February, management provided healthy guidance that should have eased investor concerns.
The company projected Q1 revenue of $43 billion, representing a 65% year-over-year increase. This is particularly impressive considering Nvidia’s already substantial revenue base of $130.5 billion for fiscal 2025.
Management credited this positive outlook to strong demand for Nvidia’s latest Blackwell AI GPUs. The new processors delivered stronger-than-expected revenue last quarter.
Tech Giants Fuel Demand
Major tech companies continue to invest heavily in AI infrastructure. Meta Platforms increased its 2025 capital expenditure guidance by nearly 9% to $68 billion to bolster its AI capabilities.
Microsoft plans to spend $80 billion in capital expenditures in fiscal 2025. The company expects to raise spending further next year due to AI capacity constraints.
Alphabet reaffirmed its $75 billion capital expenditure guidance for 2025. This represents a 43% increase compared to last year.
Morgan Stanley forecasts a sharp increase in sales of Nvidia’s Blackwell processors to $30 billion in Q1. This would be nearly triple the revenue generated in the fourth quarter of fiscal 2025.
Despite competition concerns, Nvidia remains far ahead of rivals. The company sold $115 billion worth of data center chips last fiscal year. This dwarfs Advanced Micro Devices’ estimated data center GPU sales of $5 billion.
Even Broadcom, considered the next most important chip company after Nvidia, sold just $12.2 billion worth of AI chips in its most recent fiscal year.
Market Dominance Continues
Intel isn’t making much progress in data center chips. Their data center and AI segment revenue was up just 8% in the first quarter of 2025 to $4.1 billion.
Nvidia is likely to maintain its dominant share of the AI chip market in 2025. The company is expected to control 77% of AI semiconductor wafers produced this year, up from 51% in 2024.
The wafer consumption shares of Intel and AMD are expected to shrink. This indicates Nvidia will continue to control the lion’s share of the AI chip market.
This dominance should support long-term growth as the AI chip market is projected to expand at an annualized rate of 35% through 2033.
The stock’s recent pullback has created an attractive valuation opportunity. Nvidia now trades at 38 times trailing earnings, much lower than its price-to-earnings ratio of 62 at the end of January.
Its forward earnings multiple of 25 points toward strong bottom-line growth. This is also lower than the U.S. technology sector’s earnings multiple of 42.
Analysts expect a 48% increase in Nvidia’s earnings this year. This would significantly outpace the 8% average earnings growth expected from S&P 500 companies.
In other developments, Nvidia’s stock rose 0.4% in premarket trading on Friday. This continues a positive trend that has seen shares jump 7.8% so far in May.
The gains come after the Trump administration said it would scrap regulations limiting global exports of advanced chips. These regulations were originally drawn up by the Biden administration.
Reuters reported Friday that Nvidia is close to releasing a downgraded version of its H20 chip for China. This chip is specifically designed for the Chinese market to comply with U.S. export restrictions.
Last month, Nvidia said future sales of its H20 chips to China would require a license from the U.S. Department of Commerce. This effectively blocked sales as licenses are unlikely to be forthcoming.
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