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Chip giant Nvidia (NVDA) remains central to most investors’ view of the stock market. That’s partly due to the company’s status as one of the largest publicly traded businesses and its weighting in most major indices.
Of course, most investors continue to hone in on Nvidia’s leading position in the market for high-performance computing chips as the reason to buy and hold this stock. The company has experienced volatility to start the year, such as a near-17% plunge in a single day on the emergency of rival Chinese startup DeepSeek. Investors are fearful for the potential of much more powerful artificial intelligence (AI) models to be built using less-powerful chips. This could hurt demand for Nvidia’s Blackwell rollout and for its future chips.
However, investors did recently get a positive catalyst that is helping erase some of the DeepSeek worry.
Let’s dive into why Amazon’s (AMZN) recent earnings report is proving to be such an important driver for Nvidia.
Amazon Earnings Propel Interest in Nvidia Stock
It’s important to highlight the potential effects that more efficient AI models from competitors could have on Nvidia’s future revenue and earnings growth potential. The thesis is relatively simple: If companies can use less powerful chips in a much more efficient way to bypass the need for Nvidia’s most expensive chips, many of the growth catalysts underpinning Nvidia’s investment thesis could be undermined.
However, after Amazon reported strong earnings for the fourth quarter (and a generous forecast for AI spending), investors appear to be breathing a collective sigh of relief. A key quote coming out of the Amazon earnings call, courtesy of CEO Andy Jassy, highlighted this well.
Jassy noted that “[m]ost AI compute has been driven by Nvidia chips, and we obviously have a deep partnership with Nvidia and will for as long as we can see into the future,” suggesting the e-commerce and cloud giant isn’t looking to shift its spending patterns or strategic direction on the AI front.
With overall capital expenditures expected to come in around $105 billion for the full fiscal year, investors are pricing in this 25% year-over-year increase into their expectations for Nvidia as well.
What Does This Mean for Nvidia’s Fundamentals?
From a fundamental perspective, many investors in Nvidia stock continue to argue over whether the company’s forward multiples make sense. My perspective continues to be that even with slowing growth in earnings, the company’s forward price-earnings ratio of under 33 times makes sense. It should be noted that the PEG ratio listed below is trailing, so on a forward basis, NVDA stock is now trading at a PEG ratio around 1x.
That’s cheap for a company of this quality, and it’s likely a key fundamental driver of Nvidia’s current performance.
In other words, so long as spending continues to tick higher from the likes of Amazon, the forward implied growth rate for Nvidia should remain robust.
The other key factor I think investors will be watching like a hawk in the chip maker’s upcoming quarterly report on Feb. 26 is Nvidia’s overall margins. With a net profit margin of around 49% (see above) and a return on assets of 76.6%, there are few companies of this size that have comparable performance.
Analysts Remain Bullish on Nvidia Stock, For Good Reason
In a new research note from New Street Research, analyst Pierre Ferragu said "[a]ll players have significantly stepped up their infrastructure investments. … Given how fast [AI] costs per token decline, expect aggressive growth in AI revenues in the next few years.” Ferragu is highlighting the fact that it is not just Amazon that is rapidly increasing its capex plans for 2025. Microsoft (MSFT), Meta Platforms (META), and Alphabet (GOOGL) similarly boosted their capex forecasts when they last reported earnings.
So, with growth expectations remaining robust, it should be no surprise to see analysts rate Nvidia stock as a “Strong Buy.” Analyst estimates now target roughly 29% upside from current levels, with Wall Street experts suggesting this stock could be headed to around $177.43 over the next year.
