Nvidia's AI Dominance: A Compelling Long-Term Investment Opportunity

Nvidia (NVDA), the world's third-highest-valued stock, has experienced a material decline in market capitalization following its Q2 earnings in late August. However, NVDA stock has shown some vigor again, rising 5% in the last week. After temporarily surpassing the $3 trillion milestone earlier this year, investors are wondering what the future will hold. Despite the recent volatility, my thesis remains unchanged – I'm bullish on NVDA shares as an investment due to its clear AI supremacy and exponential growth potential.

Nvidia: The AI Powerhouse Poised for Sustained Growth

NVDA's Long-Term AI-Driven Growth Trajectory Remains Intact

Nvidia's positioning for long-term growth is well-established, with top-notch clients like Microsoft (MSFT), Alphabet (GOOGL), Meta (META), and Amazon (AMZN) bulking up on their AI efforts. However, the company's AI penetration is still rising across all industries, increasing my optimism for NVDA stock. Enterprises across industries and geographies are eager to incorporate AI benefits into their operations, and NVDA continues to enter into collaborations with leading businesses.Nvidia's dominance in the AI GPU processor market is a key driver of its growth. But the company's value proposition extends beyond just hardware – it provides a complete end-to-end AI infrastructure that supercharges productivity, something that few, if any, of its global AI peers can deliver.

NVDA Remains a One-Stop AI Powerhouse with Margin Growth

Nvidia's CEO, Jensen Huang, is committed to transforming the company into a fully AI-driven data center powerhouse that covers all aspects of hardware and software under the NVDA brand. This strategy is a key reason why NVDA can maintain premium pricing for its products, contributing to steady growth in its profit margins.While some critics argue that NVDA's exceptional revenue and margin growth may not be sustainable, the company's growth projections remain impressive. For instance, NVDA reported a 217% increase in its data center revenues for fiscal 2024, and although growth is expected to moderate to around 130% in 2025, this remains a remarkable triple-digit figure, especially considering the strong FY2024 baseline for comparison.The disruptive potential of generative AI is only beginning to unfold, and I believe this will further bolster demand for NVDA's chips, boosting future revenues in the coming quarters. Despite some investor concerns, I expect NVDA will continue to maintain its clear AI dominance with an unbeatable competitive moat and best-in-class AI products and services.

A Discussion of Nvidia's Impressive Quarterly Earnings

Nvidia's Q2 2024 results were nothing short of stellar, with the company posting a 122% year-over-year revenue growth and a 154% year-over-year increase in its Data Center revenues, the company's crown-jewel division. Adjusted earnings of $0.68 per share also handily beat the consensus analyst estimate of $0.65 per share, coming in much higher (+152%) than the Fiscal Q2-2023 figure of $0.27 per share.While the company's guidance for the 3rd quarter appeared less promising to investors, with revenues expected to reach about $32.5 billion and adjusted gross margins forecast to level off at about 75%, these figures still represent impressive growth and profitability. The temporary dip in the stock price following the Q2 report was likely driven by profit-taking, as many investors were apparently hoping for even bigger numbers.

NVDA's Insider Selling Concerns are Over

Insider selling at Nvidia added downward pressure on NVDA shares in recent months, with CEO Jensen Huang selling NVDA shares across multiple transactions from June to September. However, it's important to note that these sales were part of a predetermined trading plan adopted in March, which allowed Huang to sell up to six million NVDA shares by the end of Q1 2025.Despite the significance of these sales, Huang remains the largest individual shareholder of the company, holding a combined stake of approximately 3.5% through various trusts, partnerships, and direct ownership. This demonstrates his continued commitment to Nvidia's long-term success and should allay any concerns about insider selling.

NVDA Valuation Isn't Expensive, Given Its Earnings Growth Prowess

Investors may have been hesitant to buy NVDA stock at current levels, pointing to the stock's extraordinary run and concerns about the company's slowing growth. However, my analysis suggests that NVDA's valuation is not as expensive as it may seem.Currently, NVDA is trading at a forward P/E ratio of about 43x (based on FY2025 earnings expectations), which is actually cheaper than some valuation multiples of its peers, such as Advanced Micro Devices, which carries a 46.8x forward P/E. Moreover, NVDA's current valuation still reflects a 10% discount to its five-year average forward P/E of 47.3x.Given NVDA's consistent outperformance and strong growth potential, the current valuation appears reasonable and justified. Any future dip in the stock price could represent a solid buying opportunity, especially considering Nvidia's immense potential in the rapidly expanding AI market.