This semiconductor stock can still deliver outsized returns.
Nvidia (NVDA -0.09%) has been one of the hottest stocks out there for the past couple of years (up 582% since June 2021), but there are reasons to believe that it still has plenty of upside ahead.
Let's look at six reasons why now might be a good time to buy Nvidia stock like there's no tomorrow.
1. Nvidia is having trouble keeping up with product demand
Demand for Nvidia's graphic processing units (GPUs) is booming as companies clamor to get supplies of its chips for artificial intelligence (AI) model training and inference used in data centers. This has led to incredible growth in its data center segment, with fiscal 2025 first-quarter revenue surging 427% year over year to $22.6 billion.
The company credits its growth to its Hopper GPU computing platform, which includes its H100 and H200 chips. According to Nvidia, demand for its H200 chip along with its just-introduced Blackwell architecture far exceeds demand and this could continue to be the case well into 2025.
At this point, the only thing keeping Nvidia from selling even more GPUs appears to be supply constraints as its semiconductor manufacturing partners look to increase production capacity to keep up with the demand.
2. CUDA widened Nvidia's technological moat
Nvidia isn't the only GPU maker, but its chips have become the industry standard due to its CUDA software platform. The company created the free software platform in 2006 to allow programmers to directly program its chips. As a result, programmers learned to program GPUs using the CUDA platform.
This has created a huge moat for Nvidia since most GPU programmers are knowledgeable about the CUDA platform and how to use it. Retraining programmers on other software platforms would be timely and thus costly. Programmers having to know various software platforms would also likely make them less efficient.
By pairing its GPUs with CUDA, Nvidia has been able to control the entire tech stack, from the GPUs to the software to the firmware updates. Meanwhile, as it advances its technology, it makes it backward compatible, so its newer tech can work with its older tech.
Altogether, this moat has helped the company take about an 80% market share in the GPU market.
3. Nvidia continues to innovate
Another important part of the Nvidia story is its continued innovation in the GPU space. The company accelerated its development cycle to one year from two years, pushing out advancements. This should not only keep demand strong but also keep prices high as it continues to drive innovation.
The company's Hopper architecture drives huge demand, but it has already introduced its new Blackwell architecture to drive additional sales in the back half of this year and in 2025. Meanwhile, the company's new Rubin architecture is already slated to be released in 2026.
Nvidia's architecture will be backward compatible with its older technology, but this accelerated innovation schedule should be a huge driver as customers try not to fall behind each other.
Image source: Getty Images.
4. The AI boom is just starting
While it seems like everyone has been talking about AI forever, it really only hit the mainstream after OpenAI launched ChatGP in November of 2022. Soon afterward, Microsoft meaningfully increased its investment in the start-up and began incorporating AI into its products. Since then, the AI race has been on, with numerous big tech companies looking to get in on this next big technological advancement.
That said, we are still very much in the early innings of generative AI. The technology is still relatively new, and many companies in various industries are still in the process of laying out their own AI roadmaps and how they could improve their businesses.
This is good news for a company like Nvidia. AI could be much bigger in several years and there is going to be a lot more GPUs needed to help power the AI revolution.
5. Automotive: The next AI opportunity
One area of AI that could be the next big opportunity for Nvidia is the automotive sector. Vehicles today are basically computers on wheels, and AI will play a big role when its comes to self-driving vehicles.
Tesla uses Nvidia chips to train its neural networks for its self-driving and autopilot features. The company is currently using a unit comprised of 10,000 H100 GPUs from Nvidia, valued at about $300 million, to support the training of its self-driving technology.
Nvidia has also developed other technology, especially for the auto sector, such as Nvidia Drive Thor, which is a centralized car computer for "generative AI applications and immersive in-vehicle experiences." While the data center is the company's largest market, the automobile market also holds a lot of promise.
NVDA PE Ratio (Forward) data by YCharts
6. Nvidia's valuation is relatively inexpensive
Despite Nvidia's huge stock price gains over the past several years, the stock is relatively inexpensive, trading at about 45 times forward price-to-earnings (P/E). That is well below the valuation where the stock traded at a few years ago, and inexpensive given its proven growth. With all the opportunities still in front of the company, its valuation is yet another reason investors should consider buying the stock like there is no tomorrow.
Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Nvidia, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
