Why Nvidia Stock Looks Attractive... for Some Investors

Given Nvidia's (NVDA) huge growth and relatively low valuation, NVDA stock is worth buying for value investors and growth-at-a-reasonable-price investors, And in light of the chip maker's multiple, powerful, medium-to-long-term positive catalysts, it's also an attractive name for long-term growth investors.

But due to the Street's somewhat justified concerns about the company's competition and margins, along with its unwarranted worries about its “circular financing” practices, the shares are unlikely to deliver huge returns in the short-to-medium term.  

Tremendous Growth at an Average Valuation

In Nvidia's second quarter, the chip maker's top line soared 106% versus the same period a year earlier to $96.2 billion, led by its data center sales that jumped a huge 117% year-over-year (YOY) to $89 billion. And the company's profits climbed even more dramatically, as its earnings per share advanced 120% YOY to $2.22. Also noteworthy is that the company expects its revenue to increase another 70% during its upcoming fiscal year. That far exceeds analysts' average estimate of 44% growth heading into the print. 

Moreover, even those who are bearish on the name agree that the demand for Nvidia's products far outstrips its ability to produce them. So NVDA does not have to worry about generating more demand for its offerings.

Despite the firm's staggering growth, the shares are changing hands at a rather average price-to-earnings ratio of 25.55 times.

Several Powerful Positive Catalysts

The tech star's newest chips, which are collectively known as Vera Rubin systems, reportedly provide “up to 30 times more performance per megawatt than” their predecessors and ”reduce inference token costs by a staggering 97%." These gigantic performance increases should help enable NVDA to keep selling many more chips at much higher prices than its competitors.

In March, the firm unveiled its Blueprint initiative. According to NVDA, the product will provide “massive-scale data processing and curation, synthetic data generation, reinforcement learning and evaluation of physical AI models for vision AI agents, robotics and autonomous vehicles.” The chip maker added that many top developers of physical AI, including Uber (UBER) and Teradyne (TER) , were already using Blueprint “to accelerate robotics, vision AI agents and autonomous vehicle development.” With the robotics and autonomous-vehicle markets expected to expand very rapidly in the next several years, Blueprint should become a major needle mover for the firm in the long term. Further, since Blueprint does not incorporate any chips, it should not be supply constrained as is the case for the firm's core chip business.

And speaking of autonomous vehicles, Chinese auto standouts BYD Company (BYDDY), Geely (GELYF), and Xpeng (XPEV) have all adopted Nvidia's Drive Hyperion for Level 4 Vehicles, while Japan's Isuzu (ISUZY) and Nissan (NSANY) have also done so. During the longer term, many other automakers are likely to utilize the platform.  

Concerns Could Keep NVDA Stock in Check in the Short-to-Medium Term 

Some on the Street are worried about the company's supply constraints, and bears also contend that Nvidia's margins could drop as its competition from Alphabet (GOOG) (GOOGL) and Advanced Micro Devices (AMD) ramps up in 2027. The firm's supply constraints are likely to limit its growth to some extent, although increasing demand for its software and new suppliers such as Intel (INTC) could ease this bottleneck somewhat over the longer term. 

Further, Nvidia's 70% growth forecast for fiscal 2028 suggests that it's still poised to grow tremendously despite this issue. Meanwhile, increased competition could meaningfully reduce Nvidia's margins in 2027. Still, the company's bottom line will likely climb next year, and these worries are more than adequately reflected in the stock's valuation.

Much less justified are the worries about Nvidia's “circular financing.” The latter term refers to its practice of investing in relatively small firms that are providing AI infrastructure, But Palantir Technologies (PLTR) also prolifically utilized this strategy, and it does not appear to have had a negative impact on its financial results or on the performance of PLTR stock. And with the demand for AI exploding, the firms in which Nvidia invested, such as OpenAI, Perplexity, and Anthropic, are having no trouble getting funded from many sources and should become very profitable within several years. Consequently, they will continue to purchase Nvidia's chips for the foreseeable future without significant additional assistance from NVDA.

However, these worries could keep NVDA stock from soaring in the near-to-medium term.