Nvidia (NASDAQ: NVDA) has excelled as a top-performing stock over the past two years, fueled by several key factors. However, with its impressive gains raised questions: is Nvidia stock still a wise investment at this juncture, or should current shareholders consider selling for profits?
Both perspectives have merit.
Reasons to Sell: The Future of Demand
Nvidia’s growth has largely stemmed from an escalating demand in the artificial intelligence (AI) sector. The company is renowned for its graphics processing units (GPUs)—sophisticated processors tailored for large computational tasks that can be executed in parallel. When GPUs are linked, they create powerful systems capable of handling the demanding workloads characteristic of AI technologies.
This surge in interest has led AI firms and cloud computing providers to ramp up GPU purchases, resulting in soaring sales figures for Nvidia. Over the last few years, quarterly revenues have frequently tripled year-over-year. Yet, there are signs of a slowdown as comparisons become increasingly challenging. This raises a significant question: can Nvidia sustain its current sales levels?
As companies strive to enhance their AI capacity, a time will come when demand stabilizes. Once this happens, Nvidia could see a significant drop in sales, as orders may dwindle to only replacements or gradual upgrades. This potential shift poses a considerable risk for Nvidia, especially given that its recent revenue figures have greatly exceeded historical averages.
This situation also underscores the cyclical nature of the semiconductor industry. Nvidia has navigated numerous boom and bust cycles throughout its history. If the AI-induced demand diminishes, investors could face a downturn.
However, does Nvidia possess a sufficient sales foundation to weather such cycles?
Reasons to Buy: Emerging Technologies
GPUs do not last indefinitely. Generally, they require replacement every three to five years. This timeline implies that organizations expanding their computing capabilities will need to invest significantly in new equipment to maintain their operational efficiency.
As we continue progressing through the AI expansion—now entering its second year—2025 is expected to yield continued strong demand. By 2026, many companies will also face the natural replacement cycle for GPUs acquired during the early surge of generative AI. Furthermore, there may be added incentives for upgrades.
Notably, the semiconductor chips used in Nvidia’s GPUs are produced by Taiwan Semiconductor Manufacturing (NYSE: TSM). Taiwan Semi consistently innovates, allowing designers like Nvidia to manufacture higher-performance chips with greater density.
TSMC is forecasting that its next-generation N2 chips will be 25% to 30% more power-efficient than previous models at the same speed levels. Energy expenses are notably significant for server facilities, which could drive some clients to seek upgrades, even if they do not require additional processing power. However, the N2 production lines are projected to begin operating in 2025, suggesting any significant influx of Nvidia GPUs based on this technology may not materialize until 2026.
Simultaneously, Nvidia is introducing its Blackwell architecture GPUs to supplant the existing Hopper models, boasting impressive advancements. The Blackwell architecture is four times faster than its predecessor, allowing AI companies to develop sophisticated models more swiftly.
Considering these factors, strong demand likely persists well beyond 2026. Therefore, the market’s peak may not be imminent. This longevity is crucial as Nvidia’s forward price-to-earnings ratio has reached levels that begin to appear more reasonable, given its rapid growth.
Currently, trading at 45 times forward earnings, Nvidia stock may not be the cheapest option, but its robust growth justifies this valuation.
Investors contemplating whether to buy or sell Nvidia stock should consider their projections for the company’s performance in 2026 and beyond. Numerous catalysts suggest that Nvidia’s growth could extend well past 2026, with the upgrade cycle potentially helping it sustain higher revenue levels.
Consequently, the rationale for buying Nvidia outweighs the reasons for selling it at this time.
Is This the Right Time to Invest $1,000 in Nvidia?
Before making an investment in Nvidia, it’s essential to take into account the following:
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Reflect on this: had you invested $1,000 in Nvidia on April 15, 2005, you would have seen that amount grow to $826,069!*
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Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.