Nvidia's AI Boom Value Underestimated by Market

Nvidia (NVDA) has been one of the worst-performing chip stocks this year, despite posting incredible business results. The company's trailing 12-month revenue is over $250 billion and is nearly double what it was a year ago. At its current growth rate, Nvidia's revenue would reach about $500 billion in a year and $1 trillion after that.

The market seems to be pricing in an eventual slowdown of Nvidia's growth, which has become very large. Additionally, the company's competitive threats are intensifying, not just from AMD (AMD), but also from custom accelerators developed by hyperscalers themselves.

Nvidia reports its fiscal third-quarter earnings later this week, and there are a few things to watch in addition to the headline revenue and earnings growth numbers. Any management commentary on hyperscaler order flow is worth noting, and it's essential to keep an eye on Nvidia's gross margins, especially with so much new competition in the market.

Despite being attractively valued compared to other AI stocks, there are serious questions about how long Nvidia's current growth momentum can be sustained. The company trades for around 25 times forward earnings and has a 74% gross margin and an 85% year-over-year revenue growth rate in its most recent quarter.