Nvidia’s Streak: Can It Reach New Heights in 2025?
The past two years have been a wild ride for Nvidia (NASDAQ: NVDA) shareholders, with the stock returning a staggering 239% in 2023 and 169% so far in 2024. This brings the total return to over 800% since the start of 2023. As investors look ahead to 2025, the question on everyone’s mind is: can Nvidia continue its winning streak?
The Power of Artificial Intelligence
Artificial intelligence (AI) has been a significant driver of Nvidia’s success, and understanding why is crucial to determining if this trend will continue. The company’s graphics processing units (GPUs) are essential for training and running AI models, thanks to their ability to process calculations in parallel at incredible speeds. Major tech players have snapped up thousands of these GPUs, leading to a surge in Nvidia’s revenue.
Revenue and Profit Margins Soar
As a result, Nvidia’s revenue has skyrocketed, and its profit margin has expanded from around 30% to over 55%. This perfect storm of growth has propelled the stock price to new heights. However, the question remains: how long can this momentum last?
Growth Moderation Ahead
Nvidia’s results are reaching tough year-over-year comparisons, which means its growth rate will naturally slow down. In Q2 FY 2025, revenue rose 122% year over year, down from the 262% growth achieved in Q1. Management expects revenue to reach $32.5 billion in Q3, up 80% from last year. While these figures are still impressive, they indicate a slowdown from the rapid growth investors have grown accustomed to.
Wall Street Expectations
Analysts predict 2025 will continue this trend of growth moderation, with revenue expected to rise 43% in FY 2026. Earnings per share growth is also expected to match revenue growth, rising 43% next year. While this is still an impressive growth rate, it’s a far cry from the astronomical returns of the past two years.
Valuation Concerns
Nvidia’s stock trades at a premium valuation, with a price-to-earnings ratio of 62 times trailing earnings and 33 times FY 2026 earnings. As growth slows, these valuations are likely to come down throughout 2025. This means Nvidia won’t have a valuation expansion working in its favor to propel the stock price to $200 per share.
A Solid Stock to Own
While Nvidia may not reach $200 per share in 2025, its growth potential is still strong. I believe the company has the capacity to produce market-beating returns (above 10% per year), making it a solid addition to any portfolio. Just temper your expectations and don’t bet on the stock doubling anytime soon.
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