Here's What I Think Is Going on With Nvidia Stock

Nvidia (NASDAQ: NVDA) is the most valuable company in the world, and it remains the only company worth more than $5 trillion. However, despite a brilliant first-quarter report, the stock moved lower.

Here's what I think is going on with Nvidia stock and what investors can expect going forward.

Image source: Nvidia.

The $4 trillion opportunity

According to Nvidia CFO Collette Kress, the company is chasing a $4 trillion opportunity. Hyperscaler annual spending is expected to reach more than $1 trillion next year and $3 to $4 trillion by the end of the decade, and a significant portion of that goes to Nvidia. "We are well-positioned to address a market opportunity that far exceeds that of any other AI computing platform," she said.

Data centers and artificial intelligence (AI) factories are expanding at an unrelenting pace, and Nvidia products underpin nearly every AI app and service. The latest ChatGPT Launch was designed with and trained on the Blackwell platform, which is the fastest training system and offers the lowest inference cost.

Revenue increased 95% year over year in the 2027 fiscal first quarter (ended April 26), the third quarter of accelerating growth, and the 14th quarter of consecutive growth. To put it another way, Nvidia added $13.5 billion in revenue sequentially. But more importantly for investors, it sees a continued expansion.

Already on top

The stock's price has stalled partly because some of the growth is already priced in. However, Nvidia stock doesn't look exceedingly expensive.

Data by YCharts.

More likely, expectations are just getting too high. Nvidia easily beat on the top and bottom lines in the first quarter, like it usually does. But the stakes just keep getting higher.

Something else to note is the company's gross margin. While it expanded from 60% last year to 75% this year in the first quarter, last year included a charge it took for not shipping specialized chips to China due to government regulations. But otherwise, the gross margin was on par with the year before, or slightly lower, implying that there hasn't been meaningful improvement at that level.

Data by YCharts.

The outlook is for it to stay at 75% in the second quarter. At Nvidia's place, dwarfing every other tech company in the world, these kinds of things matter more.

So while Nvidia could still keep reporting massive growth, if you're a shareholder, be prepared for serious market evaluation and the expectations for perfection.

Jennifer Saibil 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.