Nvidia Joins the Dow: A Look into the Future of AI and Its Market Potential
The Dow Jones Industrial Average is the oldest stock market index in the U.S. This price-weighted index tracks the performance of 30 of the largest publicly traded companies in the country. Its constituent companies span a variety of industries and sectors, making it a dependable indicator for the health of the economy and stock market performance in the U.S.
Nvidia (NASDAQ: NVDA) was welcomed to the Dow last month, a decision some investors believed was overdue. The chipmaker has surged 163% this year (as of this writing), earning the title of the Dow’s top performer.
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Despite this impressive performance, some investors express concerns about the future of artificial intelligence (AI) and Nvidia’s high valuation. These worries have left the stock stable over the past six months. However, I’m optimistic about Nvidia as we move into 2025. Let’s examine the reasons why Nvidia might continue to deliver exceptional growth for careful investors.
Image source: Getty Images.
A Pioneer in AI Processing
Nvidia created the graphics processing unit (GPU) to enhance video game graphics, a task that demanded significant computing power. This innovation effectively divided complex computing jobs into smaller, manageable tasks through a technique called parallel processing.
Recognizing its potential, Nvidia shifted its focus to high-performance computing (HPC) and, in 2013, achieved a significant breakthrough by applying GPUs to deep learning, a forerunner to modern AI. CEO Jensen Huang strategically positioned Nvidia as a leader in this emerging field.
This strategy proved prescient. Currently, Nvidia holds an estimated 98% of the data center GPU market, according to semiconductor analyst firm TechInsights. While this share may slightly decrease as 2024 concludes, Nvidia is still expected to dominate the market.
Impressive Financial Growth
Nvidia has benefited significantly from the increasing popularity of generative AI. Despite tough comparisons from last year, recent financial results are impressive. For its fiscal 2025 third quarter (ending Oct. 27), Nvidia recorded revenue of $35 billion, representing a 94% increase from the previous year and a 17% increase from the prior quarter. Adjusted earnings per share (EPS) reached $0.81, jumping 103%.
These results indicate that AI adoption is advancing rapidly. Nonetheless, some investors worry that the peak of this opportunity has passed, but evidence suggests otherwise.
Will AI Sustain Its Growth?
A report from the Wharton School of Business indicates that companies are moving from initial enthusiasm to thorough experimentation to figure out how to effectively implement AI for profit.
Moreover, a survey of 800 business executives revealed an increase in weekly generative AI usage from 37% in 2023 to 72% in 2024. Data analytics, contract drafting, and idea generation are some of the most common applications, with many leaders identifying more specific uses of AI, likely fueling ongoing adoption in the future.
Nvidia’s largest customers, such as Amazon, Microsoft, Alphabet, and Meta Platforms, have expressed their commitment to investing heavily in AI. Most of this spending is directed toward the servers and data centers essential for AI technology.
Anticipating Blackwell’s Impact
The stock has surged over the last few years as Nvidia’s processors have become the gold standard for AI in data centers.
The upcoming Blackwell family of AI-focused data center chips is set to begin shipping soon. Recently, CFO Colette Kress stated, “Blackwell demand is staggering, and we are racing to scale supply to meet the incredible demand customers are placing on us.”
Beth Kindig, CEO and lead tech analyst for the I/O Fund, estimates that Blackwell chips might outsell all Nvidia’s previous data center GPU sales from the past two years combined. This growth could lead to a potential upside of 70% for Nvidia stock in 2025.
A Bright Future Ahead
Nvidia’s strong performance, AI adoption trends, and market domination suggest a promising future for the company.
Although some investors fear the stock’s valuation, context is crucial. Nvidia currently trades at 51 times sales, which appears high initially. However, over the past decade, Nvidia’s average price-to-earnings (P/E) ratio has been around 59, making its current price seem comparatively attractive. Analysts expect Nvidia to deliver an EPS of $4.43 in fiscal 2026 (starting in late January), translating to roughly 29 times forward earnings—an appealing price for a company with vast growth potential.
Consequently, Nvidia stands as my top stock pick heading into 2025.
Is Investing in Nvidia the Right Move?
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John Mackey, former CEO of Whole Foods Market and an Amazon subsidiary, serves on The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, also holds a position on this board. Randi Zuckerberg, former director of market development and spokeswoman for Facebook, is a member as well. Danny Vena has stakes in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool also recommends the following: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool adheres to a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
