Nvidia Bears Get It Wrong on Growth, Valuation, and Competition

Nvidia is one of the most heavily shorted stocks in the market, but that doesn't necessarily mean it's a bad investment. The bears argue that Nvidia is priced for perfection, with high expectations and little room for growth. However, as we saw in Nvidia's latest fiscal second quarter update, those expectations were too low.

The company reported 56% top-line growth, far exceeding analyst estimates of 97%. In fact, this was the fourth consecutive quarter of accelerating year-over-year growth. And it's not just one-off results, the trend continues with projected revenue growth of 70% for fiscal year 2028.

The bears also argue that rivals will gain market share at Nvidia's expense. However, Advanced Micro Devices (AMD) has been trying to catch up for years, but its data center business still lags behind Nvidia's. In the latest quarter, AMD's data center revenue rose just 50%, compared to Nvidia's 117% growth.

The final concern is that margins will inevitably contract as Nvidia grows. However, with a gross margin of 75% and an adjusted net margin of 56%, there's still room for innovation and pricing flexibility. With third-party HBM becoming a larger cost component in the AI build-out, it's riskier than ever to bank on non-Nvidia AI chips and accelerators.