"Has Nvidia Stock Become Too Cheap to Ignore?"

Nvidia (NVDA) has been on a roller coaster ride in recent weeks, with its stock price experiencing significant volatility. After reporting earnings on Feb. 26, the stock initially popped, only to fall 8.5% the following session. Despite this, the stock recovered nearly half of that loss on Friday, settling at a 1.4% decline over the three-day period. This neutral reaction from investors suggests that Nvidia's latest print, guidance, and management commentary on the earnings call were not as impactful as some might have expected. However, the question remains: has Nvidia stock become too cheap to ignore?



Nvidia's dominance in the AI and GPU market is well-documented. The company owns 88% of the GPU market as of the first quarter of 2024, up from 80% in the prior quarter. This market leadership positions Nvidia as a key player in the AI and data center sectors. In the first quarter of fiscal year 2025, Nvidia generated $26 billion in sales and non-GAAP diluted earnings per share of $6.12. Relative to the prior-year quarter, sales grew 262% and non-GAAP diluted EPS was up 461%. The company also increased its gross margin by 12.1 points. This financial strength supports Nvidia's ability to invest in research and development, further solidifying its market position.

One of the key factors driving Nvidia's growth is the demand for AI and data center applications. Nvidia's hardware is in high demand for AI and data center applications. For instance, Meta Platforms, Alphabet, and Microsoft have preordered Nvidia's Blackwell chip, valued at tens of billions of dollars. These companies are investing heavily in AI infrastructure to support their generative AI products and expand their data centers. Meta is guiding for $65 billion in 2025 capex, Alphabet is forecasting $75 billion, Microsoft plans around $80 billion, and Amazon expects around $100 billion.

However, Nvidia's dependence on a handful of large customers poses a risk. Sales to direct Customers A, B, and C represented 12%, 11%, and 11% of total revenue, respectively, for fiscal year 2025. While these customers have deep pockets and are reliable buyers, any slowdown in their spending or shift in their preferences could significantly impact Nvidia's revenue. Additionally, if one of these customers decides to develop its own AI chips, it could pose a threat to Nvidia's business.



Another potential risk is intense competition. Although Nvidia currently has a strong lead in the AI accelerator market, it faces competition from other chipmakers like Advanced Micro Devices (AMD) and Intel, as well as cloud services giants like Amazon, Microsoft, and Google parent Alphabet. AMD is forecasting exponential growth in its data center GPU business, and Broadcom is experiencing exponential growth in AI, especially in application-specific integrated circuits (ASICs). If these competitors gain market share, it could eat away at Nvidia's top-line growth and cut into margins.

Despite these risks, Nvidia's continued innovation and market dominance position it as a strong investment opportunity. The Blackwell GPU architecture incorporates multiple innovations to trim the energy consumption required for developing, training, and running large language models (LLM). Nvidia says the platform will lower costs and energy consumption by up to 25 times. Although the chip launch has been pushed back due to a design flaw, major tech companies have Blackwell orders in place valued at tens of billions.

In conclusion, while Nvidia faces several potential risks and challenges, its dominant position in the AI and GPU market, strong financial performance, and continued innovation make it a compelling investment opportunity. Investors should keep these risks in mind when considering an investment in Nvidia, but the company's growth prospects and market leadership suggest that its stock may be too cheap to ignore.