NVIDIA: A Strategic Bet on AI's Future Amid Volatility

In late 2024, Mar Vista Capital’s U.S. Quality Select Strategy took a significant position in NVIDIA (NVDA), capitalizing on a sharp 30% decline in the stock following concerns over rising competition from Chinese AI firm DeepSeek and fears of reduced U.S. hyperscaler spending. This contrarian move, detailed in Mar Vista’s Q1 2025 investor letter, reflects a calculated bet on NVIDIA’s dominance in AI infrastructure amid short-term volatility. The firm’s decision underscores a broader theme: the race to capture value in the AI revolution, even as market dynamics and geopolitical risks complicate the path forward.

The Catalyst: Valuation Meets Volatility

The pullback in NVIDIA’s stock price—driven by DeepSeek’s announcement of an energy-efficient large language model—created an entry point Mar Vista deemed compelling. As of April 2025, NVIDIA traded at 25x 2025 earnings and 20x 2026 earnings, despite projecting revenue growth of over 50% in 2025. This valuation compression, combined with NVIDIA’s record Q4 2025 revenue of $39.3 billion (up 78% year-over-year), positioned the stock as a potential bargain for long-term investors.

NVIDIA’s Fundamentals: A Growth Engine for the AI Era

NVIDIA’s financial performance has been nothing short of extraordinary. Its Data Center segment, which powers AI training and inference workloads, has become the company’s growth engine. The launch of the Blackwell platform for trillion-parameter AI models and Spectrum-X switches for data centers further entrenches NVIDIA’s position as the hardware backbone of the AI ecosystem.

Mar Vista’s Q1 2025 letter emphasized NVIDIA’s alignment with Jevons’ paradox: as AI infrastructure becomes more efficient, demand for computing power rises exponentially. This creates a self-reinforcing cycle benefiting NVIDIA’s high-margin GPU and software offerings.

Portfolio Rationale and Performance Context

NVIDIA now ranks as Mar Vista’s fifth-largest holding, reflecting its strategic importance. The fund’s Q1 2025 net-of-fees return of -3.05% outperformed the Russell 1000 (-4.49%) and S&P 500 (-4.27%), with NVIDIA contributing to this resilience. Despite a one-month return of -4.49% in April 2025, the stock had gained 28.80% over 52 weeks, underscoring its long-term appeal.

However, Mar Vista tempered its optimism with caution. The letter noted that 20%-30% of NVIDIA’s revenue comes from China, exposing the stock to U.S.-China trade tensions. Analysts like Patrick Moorhead estimate a potential resolution to trade disputes within 90 days, but the risk remains material.

The Trade-Off: Short-Term Risks vs. Long-Term Rewards

While Mar Vista acknowledged NVIDIA’s vulnerabilities—such as competition from rivals like AMD and Intel, and the need for AI models to monetize effectively—the fund prioritized NVIDIA’s technological leadership and scale. The firm also reduced exposure to other AI stocks, such as Broadcom and Amphenol, to focus on NVIDIA’s unique position.

Yet, Mar Vista’s letter revealed a preference for undervalued AI stocks trading at under 5x earnings, suggesting a tactical shift toward faster-growing names. This nuance highlights a broader challenge: balancing exposure to proven leaders like NVIDIA against emerging opportunities in a rapidly evolving sector.

Data-Driven Insights: Why NVIDIA Remains a Cornerstone

• Market Capitalization: NVIDIA’s $2.597 trillion valuation reflects its status as the world’s largest semiconductor company and a critical player in AI.
• Hedge Fund Sentiment: The stock is held by 223 hedge funds, up from 193 in late 2024, signaling institutional confidence.
• Margin Resilience: NVIDIA’s gross margins remained in the mid-70% range, despite macroeconomic headwinds, thanks to its premium pricing power.

Conclusion: NVIDIA’s Place in the AI Pantheon

Mar Vista’s bet on NVIDIA is a masterclass in contrarian investing. The firm’s analysis—rooted in valuation metrics, industry fundamentals, and geopolitical context—paints NVIDIA as an essential holding for the AI era. While near-term risks like trade disputes and margin pressures exist, NVIDIA’s $39.3 billion in Q4 revenue, 50%+ growth trajectory, and strategic investments in AI software (e.g., NVIDIA NIM) justify its position as a long-term winner.

The fund’s slight underperformance in Q1 2025 due to sector bets outside AI (e.g., healthcare) further underscores the need for disciplined portfolio rebalancing. For investors, NVIDIA’s story remains about more than just hardware: it’s about owning the infrastructure of the next computing revolution. As Mar Vista’s letter concludes, “the AI ecosystem will be shaped by those who control the tools of creation”—and NVIDIA, for now, holds the blueprint.