Having confidence in a stock can mean multiple things. However, when I say I’ve never been more confident in a specific stock than I am right now, I am combining market-crushing returns with confidence. Those two attributes are rarely found together, as higher potential returns are normally associated with higher risk, but that doesn’t seem to be the case with Nvidia (NASDAQ: NVDA).
Nvidia’s success is tied to the data center build-out, and the hyperscalers and other leaders in this infrastructure expansion are largely approaching the trend with their cards on the table. Their public spending forecasts give investors a fairly clear idea of what will happen next, and the outlook is quite positive for Nvidia. That’s the reason why it occupies the largest position in my portfolio now.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Nvidia’s projections are exciting
Nvidia has completely tied its business to the data center build-out. During Q1, $75.2 billion of its $81.6 billion in total revenue came from its data center division. Nvidia’s OK with that level of concentration; indeed, there have been several reports that it’s considering moving away from the gaming market to focus even more on its data center product lineup. Based on the growth rates that segment is delivering, it would make sense.
Broadly speaking, the company expects major growth in data center capital expenditures. This year, artificial intelligence hyperscalers set a record for planned capital expenditures, with the big four hyperscalers planning capex of around $650 billion. In 2027, that figure is expected to top $1 trillion. However, 2027 is just the start. By 2030, spending is projected to range from $3 trillion to $4 trillion.
That would be a massive market expansion in just a handful of years, and investors shouldn’t write this prediction off as outlandish. Nvidia has visibility into future demand that individual investors don’t have. While its forecast may not prove precisely correct, I think investors need to consider the possibility that it could be mostly right. If that’s the case, there’s extreme upside available for Nvidia’s stock.
Nvidia doesn’t have a premium valuation despite its growth rate
In Q1, Nvidia’s revenue growth rate accelerated to 85% year over year. Top-line increases of that scale are unheard of for megacap companies, so the market really doesn’t know what to do with this data. If Wall Street valued Nvidia in the same way it rates some of its peers, its stock would be 2 or 3 times its current price.
