Nvidia Remains a Strong Buy Amid AI Growth and Data Center Demand

Nvidia (NASDAQ: NVDA) has solidified its position as one of the market’s top performers since early 2023. While some investors may question whether this momentum is fading, there are compelling reasons to maintain confidence in Nvidia’s prospects. The economy is in the early stages of a significant transformation, with Nvidia positioned at its core.

Here are three key factors that reinforce the argument for holding or buying more Nvidia shares.

1. Expanding Data Center Investments

Nvidia’s graphics processing units (GPUs) lead the industry in performance, which explains their dominance in the market. These GPUs excel at handling complex computing tasks by processing multiple calculations simultaneously. Their capabilities are particularly beneficial for tasks such as artificial intelligence (AI) model training. Additionally, GPUs play a crucial role in the shift from on-premise to cloud computing, powering the data centers essential for this transition.

The demand for data centers, fueled by AI advancements, is experiencing rapid growth. Despite concerns about a potential global economic slowdown and fluctuating tariffs, major AI hyperscalers have reaffirmed their commitment to record-level spending on data center construction. This trend is expected to continue for several years.

According to third-party estimates, data center capital expenditures are projected to reach approximately $400 billion in 2024, increasing to $1 trillion by 2028. The extensive planning needed for such large-scale data centers means this growth is realistic.

Currently, data centers represent Nvidia’s largest business segment, and this trend is anticipated to continue.

2. Continued Growth in AI Adoption

AI usage has significantly increased over the past few years, yet it is far from its peak potential. Companies worldwide are still integrating AI into their operations, necessitating greater computing power to handle these enhanced workloads.

A survey from Elon University indicates that 52% of U.S. adults have engaged with a generative AI model at least once. However, only 24% reported using AI for work purposes. Regarding frequency, only 34% use it daily, and 10% do so continuously.

This data suggests substantial growth potential for generative AI tools, and Nvidia stands to gain significantly from this expansion.

3. Nvidia’s Stock Valuation is Reasonable

Nvidia has garnered a reputation for being an expensive stock, but its current valuation appears more reasonable. The stock trades at approximately 28 times forward earnings, which is comparable to many leading tech peers.

Data by YCharts.

While some metrics may still classify Nvidia’s stock as expensive—trading at 42 times trailing earnings—this view overlooks the company’s anticipated growth. Currently, the stock price reflects about one year’s worth of growth, which could be justified if Nvidia continues to expand at a strong pace in light of the significant data center projections noted earlier.

Nvidia continues to be a top investment in the AI space, given its widespread application. As AI adoption increases, so too will Nvidia’s relevance as an investment choice.

Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. 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.