The S&P 500 is up 26% this year. Social media giant Meta Platforms (NASDAQ: META) has posted 62% growth on a remarkable surge in users and revenue. Neither is close to Nvidia’s (NASDAQ: NVDA) advance, up 175% to a market cap-leading $3.4 billion this year.
Nvidia’s 2025 performance is based on whether AI is the most significant advance in tech in decades or a lesser product with an effect closer to the internet or PC. Many analysts think big tech companies like Microsoft (NASDAQ: MSFT) have invested too much in AI, and their earnings will suffer until it is clear AI will drive their revenue up by double digits and justify expenditures well into the billions of dollars. Nvidia’s fate is based on big tech’s need to stay in an arm’s race, the goal of which is AI dominance.
Public corporations are not the only companies that drive AI demand. Private capital has helped OpenAI push its value to $157 billion. Elon Musk’s xAI recently got a valuation of $50 billion. He raised $6 billion recently, much of it to create a Tennessee-based server center, which will be built from 100,000 Nvidia chips.
One aspect of the AI arms race that favors Nvidia is that there is no clear leader in the industry, and a dozen companies are competing for that lead. Some, like Microsoft, are public, while the private ones appear to have a nearly infinite flow of capital from venture capitalists. Access to Nvidia chips is critical to the future of all of these.
The most obvious marker of whether Nvidia’s stock will grow or start to fall sharply in price is whether it can continue to double earnings quarterly year over year. In the most recent quarter, EPS rose 111% to $.78, as revenue rose 94% to $35.1 billion.
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