Nvidia Stock Remains Undervalued Despite 1500% Rally

Nvidia has been one of the top-performing stocks in the artificial intelligence (AI) arms race, rising nearly 1,500% since 2023. The author bought Nvidia at the beginning of 2023 and watched it double, but sold the stock due to concerns that AI computing demand wouldn't last.

However, the author had to re-purchase shares in 2024 after they ran up further, which has still been a good investment for them. Despite initial reservations, the author would buy Nvidia again today.

Nvidia's dominance in the industry is due in part to its flexible and widely used GPUs, as well as its custom AI chips that are becoming increasingly popular among AI hyperscalers. The company's market position gives it advanced knowledge of the computing power needed by these companies, allowing it to issue long-term guidance.

Nvidia estimates that global data center capital expenditures will rise to between $3 trillion and $4 trillion by 2030, with the big five AI hyperscalers planning to spend nearly $800 billion on data centers this year. Despite this growth, Nvidia's stock is not expensive, trading at a reasonable 29 times earnings.

When looking at next year's earnings, Nvidia's forward price-to-earnings ratio is less than 15, indicating that the company has almost no growth priced into its stock today. This suggests that there is major upside potential for Nvidia in the coming years, making it a good time to buy more shares.