Nvidia Stock Keeps Growing for Investors: Is It Time to Lower Expectations for 2025?

Shares of Nvidia (NVDA) have witnessed remarkable growth, doubling in value over the last two years. In 2023 alone, the stock surged 239%, and as of now, it is up 170% year-to-date. Investors are optimistic about Nvidia continuing this trend, with projections indicating strong growth for 2025 as around $1 trillion worth of data center infrastructure shifts towards more advanced hardware designed for artificial intelligence (AI).

While the impressive returns might make it tempting to buy the stock, it's essential to analyze Nvidia's current data center business outlook and set realistic expectations moving forward.

Revenue Growth Is Starting to Slow

The consensus among Wall Street analysts anticipates a revenue increase of 51% for Nvidia in the upcoming fiscal year, which ends in January 2026. This substantial growth projection follows Nvidia’s forecasted revenue of $129 billion for the current year.

A significant factor that could positively impact Nvidia's growth is the launch of their Blackwell platform, scheduled for rollout in 2025. Blackwell is an all-encompassing computing system that integrates multiple chips to provide exceptional performance for generative AI, quantum computing, and various high-performance computing tasks.

Nvidia's CFO, Colette Kress, emphasized in a recent earnings call that "Blackwell demand is staggering, and we are racing to scale supply to meet the incredible demand customers are placing on us." However, this soaring demand may already be factored into analysts' expectations. Nvidia faces growing challenges as Blackwell sales will need to compete against tough growth comparisons. Revenue growth slowed dramatically from 262% in the first quarter to 94% in the third quarter of fiscal 2025, highlighting the need for caution.

Where Will the Stock Be in One Year?

Kress's remarks about the current demand for Blackwell suggest that Nvidia is still positioned well for significant demand, even amid slowing revenue growth. The trend towards developing larger and more complex AI models means that the need for powerful GPUs will continue to grow. However, investors should be mindful of certain risks that may restrict stock performance in the coming year.

One notable competitor, Advanced Micro Devices (AMD), has been experiencing substantial growth with its Instinct data center GPUs. Recently, AMD's data center revenue grew by 122% year over year, surpassing Nvidia's growth rate. Despite this, AMD's overall market share remains limited, as Nvidia still has a more robust supply chain capable of fulfilling demand swiftly. Nvidia's data center GPU business generated $30.8 billion in revenue last quarter, whereas AMD only made $3.5 billion.

A key risk for Nvidia investors is the possibility of decreasing growth rates and how that may affect the stock's valuation. Currently, Nvidia trades at a price-to-earnings (P/E) ratio of 54, which aligns with the stock's five-year average. However, this elevated valuation is somewhat tied to the bullish expectations for continued triple-digit growth—an outcome that appears increasingly unlikely.

This leads Wall Street analysts to foresee Nvidia's earnings growing in line with revenue at around 50% next year. If investors adjust their expectations and push the stock's P/E to approximately 40, the share price could drop to $177 based on next year’s earnings forecast, suggesting a 28% upside. Nevertheless, even this lower P/E multiple would still represent a significant premium relative to the average stock.

In conclusion, the potential for a reduced P/E ratio and slowing growth highlights the need for caution among investors. Those considering purchasing Nvidia shares should do so with a long-term investment mindset, as the stock may not deliver the extraordinary returns that some may hope for in 2025.

Nvidia, Investing, Growth