The Nvidia (NASDAQ: NVDA) share price is up and down at the best of times. Lately though, it’s clicked into a higher gear of volatility.
At the end of January, it plunged 17% in one day due to concerns about DeepSeek R1, an open-source Chinese large language model purportedly trained on less powerful chips and a shoestring budget. Then it surged 20%, before slumping 14% over the past week.
What’s going on here? Let’s take a look.
Eye-popping growth
Over the past two years, Nvidia has reported blowout quarterly earnings results. This has generally wowed investors and the share price has soared in response to each report (up 400% in two years!).
However, since the AI chipmaker reported its Q4 and fiscal 2025 results on 26 February, the reaction has been different. The stock hasn’t risen sharply. In fact, it fell 8.5% yesterday (27 February).
At first glance, this might seem confusing. Full-year revenue skyrocketed 114% year on year to $130.5bn, while earnings per share surged 147%.
Importantly, demand for Nvidia’s latest Blackwell chips is “amazing“, according to management. Blackwell delivered $11bn in revenue in Q4, the company’s fastest production implementation ever.
CEO Jensen Huang said: “We’ve successfully ramped up the massive-scale production of Blackwell AI supercomputers, achieving billions of dollars in sales in its first quarter. AI is advancing at light speed as agentic AI and physical AI set the stage for the next wave of AI to revolutionise the largest industries.”
Agentic AI can make intelligent decisions in software without human supervision, while physical AI extends this capability to the real world, enabling machines and robots to perform tasks independently.
This shows how Nvidia’s GPUs have an incredibly wide range of applications — gaming, robots, self-driving cars, the multiverse, and more. I find this optionality incredibly attractive.
Valuation
Unlike Palantir, an AI stock that is still very highly valued even after a 30% fall, Nvidia’s current valuation looks cheap on some metrics.
The forward price-to-earnings (P/E) ratio, for example, is just 27. For context, Apple‘s forward P/E multiple is 32, despite the iPhone maker growing in the single digits.
Meanwhile, the P/E-to-growth (PEG) ratio, which factors in Nvidia’s expected growth, is below one. On this basis, the stock looks great value.
AI spend
However, it’s worth asking why the market isn’t affording the stock a higher premium. Some investors are worried that the current rate of capital expenditure on AI infrastructure is unsustainable. I think this is the main medium-term risk here.
Microsoft, for instance, still plans to spend over $80bn on AI in its current fiscal year (which ends in June). Yet it recently said it “may strategically pace or adjust our infrastructure in some areas“. Is that a hint of what is to come? Only time will tell, but it’s worth considering.
Ultimately, ongoing spending on AI will depend on growing customer demand and tangible returns. Investors haven’t started to demand proof that the hefty AI spend is worth it yet, but that will happen. We know that OpenAI is still losing money even on its $200-per-month ChatGPT Pro subscriptions!
Nvidia stock is down 20% from its all-time high and is flat over eight months. But I think it could fall further this year, so I’m waiting a bit longer before I consider investing.
