Why Jensen Huang Is Confident AI Spending From Hyperscalers Is Going to Only Get Bigger in the Future

Hyperscalers are the big tech giants spending feverishly on artificial intelligence (AI). Their continued investments into AI are what's enabling Nvidia (NASDAQ: NVDA) and other AI stocks to generate considerable growth, and in the process, helping send their shares higher. From chips to infrastructure to memory, there is a significant ripple effect that stems from how much these tech giants spend on AI.

While investors may worry about a possible slowdown in spending, Nvidia's CEO Jensen Huang isn't worried about that at all. In fact, Huang believes spending will remain high as the AI arms race may continue to ramp up. Here's why AI investments from hyperscalers may actually increase in the future.

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Companies need to spend to keep up

While tech companies are spending massive amounts of money on capital expenditures tied to AI, Huang believes there is still much more room for growth. He says that companies will need to continue to invest in computing capabilities, not only to generate revenue, but also because "compute is profit." And with AI requiring significant computing power, Huang continues to expect to see more spending from hyperscalers in the years ahead.

Some analysts believe that AI spending will top $1 trillion within a couple of years. However, Nvidia's management projects that by the end of the decade, it could top $4 trillion in annual spend, especially with the growth in agentic AI.

The pressure is one for hyperscalers to show that their efforts in AI will pay off. Slowing down would enable rivals to leap ahead and gain an advantage, which simply may not be a tenable option.

Could this make Nvidia's stock undervalued?

If analysts are underestimating the growth opportunities in AI, they are effectively undervaluing Nvidia's stock in the process. Not only could price targets be low, but the stock's price-to-earnings-growth (PEG) multiple, which is based on the company's expected growth over the next five years, should be even lower than it is right now (0.66), suggesting that Nvidia may be an even better deal than it appears to be.

If you believe Nvidia's growth projections for AI-related expenditures, then the growth stock may indeed be a fantastic buy right now. But even at its current valuation and current projections, it's not a terribly expensive stock to own. Provided that you're willing to stay the course and hold on for the long term, the stock may be a good buy regardless of which projection ends up being true. However, with a lot of growth already priced into its valuation, its returns may not be as massive as they have been in recent years.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.