This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Few stocks have done as consistently well as Nvidia (NASDAQ: NVDA) over the past two years. Since the start of 2023, it's up around 900% after posting incredible returns in both 2023 and 2024. Now the question is, can Nvidia three-peat and be a top performer in 2025?
2025 will likely be the most difficult year of the three, as Nvidia's growth is starting to slow (although it's still strong). But is Nvidia still the top artificial intelligence (AI) stock to own for 2025?
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Nvidia's GPU business could see further growth in 2025
Nvidia has risen to the top of AI investments because it has become the building block on which AI models are built and trained. Its graphics processing units (GPUs) and the software that controls them, CUDA, are best in class. When speed is the name of the game, it doesn't leave room for second-place companies that cannot match Nvidia's performance.
GPUs are a top tool for the job because they can process multiple calculations in parallel. This benefit can be further multiplied by connecting thousands of GPUs in computing clusters. With many of the largest AI and cloud computing companies buying thousands of GPUs every month, Nvidia's business has boomed, driving the stock higher.
As a positive point for Nvidia's stock, this trend looks like it will continue in 2025.
Meta Platforms informed investors that they should expect a "significant acceleration in infrastructure expense growth" in 2025. Clearly, that means Nvidia will benefit from further spending over the next year. Meta isn't alone in this. Other top spenders like Microsoft and Amazon also provided commentary that their high spending will continue next year.
This is a great sign for Nvidia, as it indicates that the industry hasn't reached peak GPU demand yet.
But is 2025's growth already baked into the stock price?
The stock isn't cheap, but it's not as expensive as you might think
When companies see a huge growth wave, it isn't uncommon for their stock's valuation to skyrocket as the market starts to price in future growth. As the business gains are realised, this valuation slowly comes down. However, Nvidia's stock isn't doing that.
NVDA PE Ratio (Forward 1y) data by YCharts
This chart shows Nvidia's one-year forward price-to-earnings (P/E) ratio, which prices the company using next year's projected earnings. At 33 times fiscal year 2026 earnings, Nvidia's stock is the most expensive it has been. However, you have to consider whether Nvidia would be fairly valued if that was its price tag.
Considering that companies like Apple and Microsoft trade for 29 times next fiscal year's earnings, the slight premium you have to pay for Nvidia's top-notch growth seems worth it.
For fiscal year 2026 (Nvidia's fiscal year that encompasses most of 2025), Wall Street analysts project more than 50% revenue growth. This will likely come on the back of Nvidia's next-generation Blackwell infrastructure, which provides a huge performance boost over its current architecture, Hopper. The performance boost could cause many to upgrade their computing servers to outpace their competitors, a trend that likely won't be completed in 2025.
As a result, Nvidia still has plenty of tailwinds propelling it forward, making it a solid stock for 2025. However, investors need to understand that the stock likely won't rise like it has in 2023 or 2024. Instead, I'd expect a modest double-digit gain but likely a high enough level to beat the market. As a result, Nvidia seems like another top AI stock for 2025, although it doesn't have as high of a return potential as it did the past two years.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
