Is Nvidia a Buy?
Key Points
Spending to expand technical infrastructure is a top priority, and companies are showing no signs of holding back.
Despite surging demand, Nvidia's customers are developing their own chips, which presents a risk.
It's wild to think that after a nearly 1,200% five-year return, this AI stock is still undervalued.
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Alphabet and Meta Platforms are two of the most successful companies the world has ever known. Combined, they are planning to spend $305 billion (at the midpoint) in capital expenditures in 2026 to expand bandwidth for artificial intelligence (AI) capabilities. This massive sum is significantly larger than last year's outlays.
Who's the biggest beneficiary of the spending these internet giants, as well as many other businesses, are taking on? It's Nvidia (NASDAQ: NVDA). Is this leading AI stock a buy?
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Image source: Nvidia.
Falling behind is not an option
Whether you are optimistic or pessimistic about the prospects of AI and its potential impact on the economy, it isn't stopping companies from leaning in. And Nvidia wins, as capital gets directed to infrastructure projects that support greater computing capacity.
With its Hopper, Blackwell, and upcoming Ruben architectures, the business dominates the industry for data center chips, with about 90% market share. Combined with its CUDA software that enables developers to work on AI applications, Nvidia benefits from switching costs as well. As a result, it's in an enviable competitive position.
This ongoing AI build-out boom has led to tremendous growth, with Nvidia's revenue and net income surging 62% and 65%, respectively, in the third quarter of fiscal 2026 (ended Oct. 26) on a year-over-year basis. Investors should have no complaints with that type of jaw-dropping performance.
Two key risks
There are certainly risks to think about. The obvious one is that we could be in an AI bubble. The money being spent is truly mind-boggling, becoming a bigger share of GDP. And investors are increasingly concerned about what the long-term payoffs will look like. If AI businesses show any signs of pulling back, market sentiment could turn. And that could hurt Nvidia shares.
Another risk deals with Nvidia's customer base. Given how insatiable their demand is to increase technical infrastructure for their internal needs, it makes sense that they are trying to integrate upstream and bring more chip development in-house. This goal is to lessen dependence on Nvidia, which could pressure sales over time.
Is this top AI stock undervalued?
Nvidia's market cap is $4.2 trillion (as of Feb. 5). In the past five years, the share price has skyrocketed 1,180%. This unbelievable gain would've turned a $10,000 starting sum into $128,000 today.
Knowing these key metrics, it's totally understandable if the initial perception is that this top AI stock must be expensive. This doesn't appear to be the case, though. Investors can buy Nvidia right now by paying a forward price-to-earnings ratio of 23.5. That's a good deal.
Should you buy stock in Nvidia right now?
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
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