Nvidia: A significant opportunity to buy the king of AI

Nvidia investors have recently experienced a challenging integration period due to concerns about investments in AI. The market may be concerned about the progress of the delayed release of the Blackwell AI chip.
Nvidia's revenue growth is expected to normalize. However, the market may not fully realize the growth opportunities from sovereign AI and enterprise adoption.
Nvidia's PEG (price-to-earnings growth ratio) has dropped to an attractive level, indicating that the market may already reflect significant pessimism.
Nvidia investors have endured pressure during a prolonged integration period as the market reassesses whether the 'AI father' can continue to deliver outstanding performance. In the recent earnings release, Nvidia's guidance was not enough to inspire market confidence, resulting in a failure to sustain its astonishing performance. Coupled with the unexpected delay of the Blackwell architecture chip, the market may need further evidence to continue to be bullish on Nvidia for the fiscal year 2025.
In Nvidia's performance commentary for the second quarter, management emphasized its confidence and stated that Nvidia's customers have started testing the Blackwell chip. However, due to the complexity of its design, there is an increased execution risk, especially when working with its foundry partner Taiwan Semiconductor Manufacturing Company (TSMC) to achieve robust production yield. Despite Nvidia's confidence in the current Hopper architecture's ability to continue supporting strong demand, investors remain cautious.
The company's reported second-quarter data center revenue is $26.3 billion, a year-on-year growth of over 150%. This is due to active AI infrastructure investment, but compared to the first quarter's year-on-year growth of 427%, it has slowed down. Therefore, although the optimistic sentiment of leading hyperscale customers and cloud service providers should continue to support the growth of Hopper, the 'law of large numbers' is quickly emerging.
In other words, Nvidia investors may need Blackwell to be quickly launched for the transition to be realized. Although there is caution in the short term, management emphasizes that 'customers are accelerating the adoption of the Hopper architecture and preparing to adopt Blackwell.' Therefore, Nvidia investors should be confident in the company's statement that 'the expected shipments of Hopper will increase in the second half of the 2025 fiscal year.'
Although Nvidia's Hopper architecture has a strong foundation, the company must prove that it can effectively improve the yield of Blackwell. Therefore, the company points out that it is expected that Blackwell will start mass production in the fourth quarter, indicating that we can see a stronger inflection point of growth in the 2026 fiscal year.
I agree with the management's optimistic attitude that 'demand for the Blackwell platform far exceeds supply.' This is consistent with recent comments indicating that Nvidia's full-stack infrastructure not only has significant competitive advantages in AI training, but also in inference. Today, Nvidia's AI clusters are considered essential equipment for top AI companies and large tech companies. Therefore, Nvidia's confidence in Blackwell seems reasonable, indicating that its strong growth momentum is not exaggerated, which will support the potential surge in AI infrastructure investment.
In addition, I assess the expected growth of sovereign AI demand is still in its early stage. The management has raised the revenue expectation for sovereign AI to 'low double-digit billions of dollars this year.' As countries seek to gain an advantage in the AI arms race by leveraging their unique data assets, the AI competition is expected to intensify.
In addition, the market may not fully consider the potential growth in enterprise user adoption as AI factories become mainstream. The updated statement from management indicates that Nvidia is 'collaborating with most Fortune 100 companies to advance cross-industry and regional AI initiatives.' Therefore, this should contribute to market confidence in the monetization of AI, although questions still remain about the effectiveness of the AI listing strategy.
Nvidia's revenue growth is expected to normalize after the rapid growth in early last year. However, its adjusted EBITDA profit margin is unlikely to be significantly affected, despite recent low production volume issues impacting its gross margin.
Even when facing potential competition from AMD, Nvidia should still maintain its pricing power. AMD's AI revenue may not pose a significant threat to Nvidia's market leadership in the short term. However, AMD is gradually narrowing the gap with Nvidia in terms of full-stack advantage, but it is still too early to assess its impact on Nvidia's market leadership.
Nvidia has a strong fundamental, with an 'A+' rating for profitability, providing a solid foundation for market confidence, despite concerns about the yield of its Blackwell chip.
In addition, its 'A+' growth rating indicates that investors should use appropriate growth-adjusted valuation indicators when evaluating further valuation re-rating opportunities.
Therefore, Nvidia's future adjusted PEG ratio is 1.02, more than 40% lower than the industry median. Therefore, I believe that the market may have already fully considered the sustainability of its bullish view on AI with a pessimistic sentiment. This cautious attitude is reasonable, given the expected normalization of its revenue growth momentum. However, it also suggests that the potential strong prospects attributed to sovereign AI and enterprise demand may drive changes in its valuation.
Therefore, I believe the current consolidation period is a suitable opportunity for long-term investors to consider increasing exposure while waiting for more positive comments from management regarding Blackwell.
Rating: Maintaining a buy recommendation

Purely personal opinions and views... Mainly just talking nonsense 🤣
Don't take it too seriously 🤗