Is It Too Late to Buy Artificial Intelligence (AI) Leader Nvidia in 2025? There's a Growing Mountain of Evidence Piling Up That Provides a Crystal Clear Answer.

There's been a lot of ink spilled about the growing demand for artificial intelligence (AI) and the potential for the technology to revolutionize the world. Nvidia (NVDA -3.00%) has been one of the clearest beneficiaries of this trend. The company's graphics processing units (GPUs) cornered the market by providing the computational horsepower needed to fuel the technology.

Yet, Nvidia's stock price has stalled over the past six months. Some investors fear the gravy train has run its course and demand for its AI chips could trail off. However, a growing mountain of evidence provides a crystal clear answer to the question: Is it too late to buy Nvidia stock?

Data centers have their day in the sun

The biggest contributor to Nvidia's meteoric rise over the past two years has been the unrivaled performance of its GPUs. These chips were originally developed to create lifelike images in video games but are equally adept at providing the computational horsepower needed to support generative AI. The sheer volume of data required to train these AI models is daunting, and few companies have the resources to develop these top-tier models from scratch -- and nearly all of them are Nvidia customers.

The final totals for 2024 have yet to be released, but Nvidia dominates the market for the data center GPUs used for AI. In 2023, much like 2022, Nvidia commanded a 98% market share, and its leadership position in the space isn't expected to change any time soon.

Even as the company has tasked its partners to ramp up production of its high-end AI processors, demand continues to exceed supply. There's evidence suggesting that unprecedented demand will continue.

Just last week, Microsoft president Brad Smith announced that in fiscal 2025 (which began July 1), the company "is on track to invest approximately $80 billion to build out AI-enabled data centers to train AI models and deploy AI and cloud-based applications."

He was clear about why he believed this spending was necessary. "Not since the invention of electricity has the United States had the opportunity it has today to harness new technology. ... In many ways, artificial intelligence is the electricity of our age, and the next four years can build a foundation for America's economic success for the next quarter century."

For context, Microsoft spent nearly $56 billion on capital expenditures (capex) last fiscal year, marking a 44% increase in spending. This shows that investment to support AI is ramping up rather than slowing down.

Microsoft isn't the only tech powerhouse spending heavily on AI. Alphabet is expected to spend about $51 billion on capex when its books are closed in 2024, and the company plans to ramp up spending next year. On the Q3 earnings call, CEO Sundar Pichai said, "Realizing [the opportunity] of AI requires ... meaningful capital investment," and said there will be "substantial increases in capital investment ... going into 2025."

Not to be left out, Amazon is expected to spend $75 billion on capex in 2024 and even more in 2025, according to CEO Andy Jassy. He went on to say the majority of that will be to support its cloud unit, Amazon Web Services (AWS), and the spending "here is really driven by generative AI."

While it isn't a cloud provider, Meta Platforms has been spending heavily to develop its cutting-edge Llama AI models. The company was on track to spend roughly $39 billion in 2024, and CFO Susan Li said, "We continue to expect significant capital expenditures growth in 2025." She previously stated that this spending was "to support our AI research and product development efforts."

Its customer list is illuminating

Based on these tech executives' comments, it's clear that spending on AI is ramping up. The lion's share of that spending will be for the data centers and servers needed to support AI, with the principal beneficiary being Nvidia, whose chips underpin the technology.

Nvidia doesn't disclose exactly who its biggest customers are, but Wall Street has done some detective work. Analysts with Bloomberg and Barclays Research have concluded that Nvidia's four biggest customers -- responsible for 40% of revenue -- are:

• Microsoft: 15%
• Meta Platforms: 13%
• Amazon: 6.2%
• Alphabet: 5.8%

Executives from each of these companies have been crystal clear about their plans to ramp capex spending, the vast majority to support cloud computing and, more specifically, AI. As the unrivaled leader in the data center GPU space, Nvidia stands to reap the windfall of all this spending.

Is it too late?

After generating triple-digit year-over-year growth for five consecutive quarters, Nvidia's growth eventually slowed but remains impressive nonetheless. During its fiscal 2025 third quarter (ended Oct. 27), Nvidia generated record revenue of $35 billion, which surged 94% year over year and 17% sequentially. At the same time, adjusted earnings per share (EPS) of $0.81 soared 103%.

The days of triple-digit growth have likely passed, but many believe Nvidia still has a long runway ahead. Despite the runaway success of the company's Hopper AI processor, the recently released Blackwell chip is expected to generate even more sales. The processor, which is in full production and began shipping late last quarter, is believed to be sold out for the coming 12 months -- despite its recent release.

The mountain of evidence suggests Nvidia has a long road ahead as the adoption of AI gains steam. Furthermore, even after notching gains of more than 850% over the past two years (as of this writing), Nvidia stock remains attractively priced, selling for roughly 32 times next year's expected sales.

Given its industry-leading technology, the increasing demand for its processors, and the reasonable valuation, I would submit that it isn't too late to buy Nvidia, particularly given the growing adoption of AI.