Nvidia Passes Its Latest Test. Here's What It Means for Investors.

All eyes were on Nvidia (NASDAQ: NVDA) once again when it reported fourth-quarter earnings last week. However, Nvidia's stock isn't in the same position as it was a year or two ago when it was delighting investors with skyrocketing growth and a seemingly endless opportunity in artificial intelligence (AI).

The company is still delivering blistering growth, but investor expectations now seem to be aligned with the company's trajectory, and there is less room for surprises. Despite ample anticipation for the fourth-quarter report after hours on Wednesday, the stock was trading down 3% this past Thursday even as the company beat estimates.

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Nvidia didn't disappoint with its fourth-quarter results. Revenue jumped 78% from the quarter a year ago to $39.3 billion, which was ahead of the consensus at $38.2 billion. Growth was again paced by the data center segment, where AI computing is taking place, with data center revenue up 93% to $35.6 billion.

The gross margin fell from 76% to 73%, reflecting increased spending on the production ramp-up for the new Blackwell platform. However, it gained leverage in operating expenses, and earnings per share jumped 82% to $0.89, ahead of the consensus at $0.85.

Looking ahead to the first quarter, the company sees revenue of around $43 billion, representing 9% growth on a sequential basis and 65% year over year.

Image source: Nvidia.

The AI boom is priced in

Nvidia's earnings report, and the market's response, seemed to underscore that the surprise factor in its earnings report is now gone.

While 78% revenue growth is phenomenal, investors have come to expect such growth from Nvidia as demand for its Blackwell components continues to outstrip supply. Now that expectations have adjusted to Nvidia's growth, and the massive opportunity in AI, it will be harder for Nvidia to deliver the kind of breakout performance we saw from the stock in 2023 and 2024.

On the earnings call, CEO Jensen Huang seemed to quell lingering concerns that DeepSeek's low-cost AI model would sap the company's growth as investors had feared when the new model triggered a massive one-day sell-off in the AI sector a month ago.

Despite the DeepSeek innovation, AI computing needs are only growing. Huang noted that post-training demands more computing that pre-training. He also explained that the company has good visibility into AI expansions and its own demand as it works closely with its customers. He noted the large number of AI start-ups that continue to come online as well.

Is Nvidia a buy?

Despite the DeepSeek scare, Nvidia for now seems more likely to be range-bound in the coming months as the benefit of the massive AI infrastructure build-out is understood. At this point, it's unclear what could be the catalyst for Nvidia to take another leg up. The company might need to see a ramp-up in another area of AI such as autonomous vehicles or agentic AI, which would lift the stock.

AI is still in its early stages as big tech companies race toward artificial general intelligence (AGI), and Nvidia seems likely to dominate AI computing infrastructure in the future as well. At one point, investors believed challengers like Intel and Advanced Micro Devices would take share in the GPU market, but Nvidia has fended them off with new advances in its Blackwell platform, and it's likely to maintain that leadership in data center GPUs down the road.

Currently, the stock trades at a price-to-earnings ratio of 43, which looks like a great price for a company growing revenue by 78%, though that growth rate is set to steadily slow. Over the long term, Nvidia still looks like a must-own stock. It's leading the AI revolution. Huang has proven himself as a visionary, and the company is likely to benefit from future technologies that aren't yet seen.

However, over the near term, investors should temper their expectations as Nvidia's current growth trajectory is well understood. For the AI chip leader, 2025 could be about digesting the gains of the last two years, rather than making new ones.

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Jeremy Bowman has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.