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Nvidia (NVDA) has dominated the artificial intelligence (AI) narrative over the past two years, driving the tech stock to all-time highs in January 2025. However, today, the chip maker’s shares are down 11% from record levels as investors worry about the company’s slowing growth and lofty valuations.
In late January, NVDA stock shed 4% in market value in a single trading session following a Bloomberg report that stated that President Donald Trump’s administration is considering new restrictions on Nvidia’s chip sales to China.
Nvidia also lost 17% in market value two weeks back, the largest one-day market cap loss ever on Wall Street. The decline was triggered by news about DeepSeek, a Chinese startup that developed a cost-effective AI model using cheaper chips and less data. This development raised concerns about Nvidia’s future chip sales and market dominance.
While Nvidia shares have partially recovered, investors remain nervous about trade war escalations between the U.S. and China, the world’s two largest economies. Nvidia has stated it is “ready to work with the U.S. administration,” noting that current restrictions are based on five-year-old performance levels.
Will Nvidia Beat Estimates in Q4?
As the earnings season ends, all eyes will be on Nvidia’s fourth-quarter results for its fiscal 2025. Its report is scheduled for Feb. 26. According to consensus estimates, Nvidia is forecast to report revenue of $38.13 billion in Q4, up from $22.1 billion in the year-ago period. Comparatively, adjusted earnings per share are forecast to expand to $0.85 per share, up from $0.52 per share.
If Nvidia meets these estimates, its sales will grow by 112% year-over-year to $129.3 billion in fiscal 2025. Due to an asset-light model, pricing power, and high operating leverage, the company is on track to end fiscal 2025 with adjusted earnings of $2.95 per share, up from $1.30 per share in 2024.
What Is Next for NVDA Stock?
Major tech companies continue to invest heavily in AI infrastructure, as Nvidia remains a primary beneficiary of this trend. Nvidia’s financial performance reflects this dominance.
In its Q3, sales almost doubled to $35.1 billion, driven by data center revenue of $30.8 billion. CEO Jensen Huang projects that AI data center spending could reach $2 trillion over five years, supported by significant investments from companies like Microsoft (MSFT) ($80 billion in 2025) and a joint $500 billion commitment from OpenAI, Oracle (ORCL), and Softbank (SFTBY).
However, Nvidia faces several near-term challenges, which include potential margin pressure as AI-GPU scarcity decreases, competition from tech giants developing their own chips, ongoing China export restrictions, and concerns about AI technology adoption rates.
While Nvidia’s forward P/E ratio of 29.1x isn’t dramatically higher than the S&P 500 Index’s ($SPX) 24x, some analysts worry about its historically high price-sales ratio and the possibility of underperformance in 2025, despite established revenue streams from gaming and cryptocurrency mining.
Is Nvidia Stock Overvalued?
Analysts tracking Nvidia expect sales to rise from $129 billion in 2025 to $196 billion in 2026. Comparatively, adjusted earnings per share are forecast to expand from $2.95 in 2025 to $4.45 in 2026. Its free cash flow is projected to rise from $64.5 billion to $94.6 billion over the next 12 months.
Priced at 40x trailing FCF, the company will be valued at a market cap of $3.8 billion, indicating upside potential of 15% from current levels.
Out of the 43 analysts covering Nvidia stock, 37 recommend “Strong Buy,” two recommend “Moderate Buy,” and four recommend “Hold.” The average target price for NVDA stock is $177.81, above the current trading price of $132.80.
