Nvidia Stock Surges 906%: Reasons to Consider It a Strong Buy

Since the beginning of 2023, Nvidia (NVDA -3.12%) has seen its stock increase remarkably by 906%. Currently, it is trading close to its all-time high. While this substantial gain might deter some potential investors—triggering thoughts like, "It has gone up so much already; how can it keep rising?"—this is a common reaction known as "price anchoring." This psychological phenomenon occurs when investors compare current prices to previous ones, leading them to perceive higher prices as excessive.

Despite missing part of its growth, there remains significant potential for further increases in Nvidia's stock. The company is centered around a booming trend: artificial intelligence (AI). Global companies that invest heavily in AI have been integrating Nvidia's industry-leading GPUs into their servers due to their exceptional capability of performing multiple parallel calculations.

Nvidia’s Future Growth Prospects

Nvidia is expected to play a pivotal role in the continuous expansion of AI technologies. Several major players in cloud computing have signaled their plans for increased capital expenditure in 2025, and AI giant Meta Platforms reiterated this idea during its recent earnings report. Furthermore, Nvidia's chip manufacturer, Taiwan Semiconductor, predicts that revenue generated from AI-related chips will double by 2025, signifying that Nvidia's growth trajectory is far from peaking.

Looking at Wall Street’s projections, an average of 60 analysts anticipate that Nvidia's revenue for FY 2026 (ending January 2026) will hit approximately $196 billion, which marks an impressive 52% increase from expected FY 2025 revenues. Such expected growth is remarkable for a company of Nvidia’s size and suggests a promising future ahead.

In essence, Nvidia is expected to have a stellar year in 2025. However, it currently trades at a reasonable valuation considering its anticipated growth.

Assessing Nvidia’s Valuation

Given Nvidia's expected robust growth in the coming year, it is more insightful to evaluate its valuation based on future earnings instead of trailing metrics. At its current price levels, should Nvidia meet analyst projections, it will achieve a price-to-earnings (P/E) ratio of 33 times its anticipated earnings for FY 2026.

This valuation is compelling, particularly when compared to other major technology firms like Apple and Microsoft, which have P/E ratios of 27 and 30, respectively, based on FY 2026 earnings. It is also possible that if Nvidia maintains its impressive growth, its valuation may remain elevated, potentially leading to further stock price appreciation throughout the year.

While Nvidia has experienced a significant upward trend over the last couple of years, the fundamentals indicate that 2025 could be another year of strong performance for the stock. Although the percentage increases may not match the explosive growth seen in 2023 or 2024, the company still has much room for expansion, making it a solid investment option now.

Nvidia, Stock, Investment