Even during periods of share price decline, like the first two months of 2025, Nvidia (NVDA) remains a firm conviction buy for many bulls, myself included. Last week, NVDA stock endured a 7% selloff after the chipmaker published Q4 performance metrics beating Wall St. forecasts across the board, including a 78% rise in sales and an 80% increase in profits, year-over-year. However, the AI powerhouse still encounters challenges, including concerns over declining gross margins, potential demand shifts due to DeepSeek, and Trump administration tariffs that could affect revenue and profitability. Hence, last week’s knee-jerk selloff was quickly erased as investors bought the dip in NVDA stock.
My bullish outlook remains firm, as there are no indications of weakening demand for Nvidia’s GPUs—quite the opposite.
Nvidia’s Q4 margin decline was primarily driven by the ramp-up of its new Blackwell technology. The company had to accelerate supply to meet surging demand, which temporarily pressured margins. The drop in NVDA stock is not a result of increased competition or changing AI investment trends, as the snap market recovery following NVDA’s plunge shows.
As long as demand for Nvidia’s GPUs remains strong, I see no reason for bulls to reconsider their positions. With Nvidia maintaining a dominant lead in the AI GPU market, investors buying at a valuation below 30x forward earnings are well-positioned for substantial long-term gains.
Nvidia’s New Technology Ramp-Up Exceeds Expectations
Nvidia’s Q4 earnings were stellar, with revenues hitting $39.3 billion—up 78% year-on-year and 12% quarter-on-quarter—well above the company’s guidance of $37.5 billion. But beyond these impressive numbers, it’s essential to focus on the key factors driving this growth.
For instance, Nvidia’s data center business, which made up $35.6 billion of total revenue, saw a 16% quarter-on-quarter jump and an eye-popping 93% year-on-year increase. The company’s latest technology, Blackwell, has ramped up even faster than expected, bringing in $11 billion in revenue. Meanwhile, the Hopper 200 has continued to show strong growth.
Customers are scrambling to scale infrastructure to train next-gen AI models, unlocking even more potential with Blackwell. These clusters often start with 100,000 GPUs or more, highlighting the massive demand for this new technology. In short, Nvidia’s Blackwell opens new possibilities for companies building AI capabilities.
Interestingly, while Nvidia’s new technology is outpacing expectations, its previous-gen technology, the Hopper 200, still performs exceptionally well. This shows just how strong the organic demand is for Nvidia’s products. When Blackwell units run out, customers are turning to Hopper, as it’s still a massive upgrade from older tech. With the AI boom, older chips (like those from 2017 or 2020) simply aren’t cutting it anymore, and companies are rebuilding their entire infrastructure.
Compressed Margins Not Enough to Derail NVDA
Arguably, some Nvidia skeptics have picked up on some minor cracks in the company’s latest results, with the main one being a drop in gross profit margins. Nvidia saw its gross margins fall from 75% to 70%, even though the management team made it clear that the company’s gross profit margins should return to the mid-70s later this year.
The key thing to understand here is that the margin dip happened because of Blackwell’s ramp-up. As demand for the new technology shot up faster than expected, Nvidia had to speed up production and quickly get products out the door. This meant they had to make as many GPUs as possible, ship everything they could, and even pay suppliers extra to ensure the products reached customers faster.
What’s essential here is that the drop in margins was driven by supply constraints, not a lack of demand—something crucial for Nvidia’s long-term growth story. Even with this dip, a 70% gross margin remains robust and attractive.
Nvidia Stock Is a Bargain Once Growth Potential Is Factored In
It’s no surprise that, as we’ve seen over the past couple of years, the company needs to maintain strong growth across all its key metrics for Nvidia’s stock to sustain its bullish momentum.
At a 42.5x P/E ratio for the past twelve months and a more attractive 27.7x P/E ratio for 2025, it’s clear that the growth expectations are through the roof at Nvidia. The company’s three-to-five-year EPS CAGR is an impressive 34.6%, which results in a PEG ratio of just 0.8x. This suggests that the stock is significantly undervalued as and when growth metrics are factored in.
Given how consistently Nvidia has exceeded expectations in virtually every area over the past couple of years, it’s hard to ignore how undervalued the company seems, especially considering how it has positioned itself as the backbone of the AI boom.
What is the 12-month Price Target for NVDA?
Of the 33 analysts who have covered Nvidia in the last three months, 31 are bullish, while only 2 have a neutral stance. Thus, Nvidia has an overwhelmingly Strong Buy rating on Wall Street. The consensus average price target for NVDA is $178.66 per share, suggesting an upside potential of ~43% over the coming twelve months.
NVDA’s Short-Term Weakness Delivers Long-Term Buying Opportunity
Nvidia’s weak performance in the first two months of 2025, along with softer returns over the past six months, presents a prime buying opportunity—especially when factoring in its growth potential.
While rising costs and temporary challenges may concern some investors, Nvidia’s long-term outlook remains exceptionally strong. Hyperscalers and tech giants are projected to invest around $300 billion more in AI this year, fueling even greater demand for Nvidia’s GPUs. That demand is expected to exceed supply throughout 2025—a good problem to have. As long as demand remains robust, Nvidia’s growth trajectory is poised to continue rising.