Nvidia's shares experienced a surge on Wednesday.
Starting off today's market activities, Nvidia's (NVDA 3.16%) shares were plunging, positioned in the correction zone after plummeting more than 12% from their peak. Nevertheless, there were signs of recovery, with the stock midway through the recovery process, recording a surge of up to 4.8%. At 11:46 a.m. ET on a Wednesday, the stock was still thriving, clocking in a 3.4% increase.
The positive sentiment surrounding Nvidia was prompted by several developments that painted a rosy picture for the tech giant.
Encouraging news
Clearly, cloud service providers have been Nvidia's primary clients, contributing a substantial 50% of its data center revenue in the fiscal 2025 third quarter (October 27 end), according to CFO Colette Kress.
Investors might be privy to more insights about Microsoft's purchases this year, courtesy of the Financial Times. The news outlet suggested that Microsoft doubled its purchases of Nvidia's Hopper chips in 2024 compared to any other competitor.
The report quotes tech consultants from Omdia as saying Microsoft bought an impressive 485,000 chips, dwarfing the second-largest purchaser, Meta Platforms, with 224,000 chips. This suggests that other competitors may need to ramp up their purchases to close the gap.
On a different note, Nvidia unveiled its most economical generative AI supercomputer, named the Jetson Orin Nano Super. Nvidia describes this compact device as fitting comfortably in the palm of your hand, offering AI capabilities suited for "enthusiasts and students" at an affordable price tag of $249 - a substantial 50% discount from the previous generation.
Is Nvidia stock a sound investment?
The data consistently points to the unrestrained adoption of AI, causing some investors to raise concerns about Nvidia potentially riding too high on the wave - and at a price-to-earnings ratio of 53, such worries are reasonable. However, over the past decade, the stock has generally traded at around 59 times earnings, indicating a potential bargain based on historical standards.
Looking ahead to the fiscal 2026, commencing in late January, Nvidia is valued at approximately 29 times its estimated sales for the subsequent year. Given the company's growth trajectory, this could represent a promising opportunity.
Given the increased demand for cloud services and Nvidia's significant contribution from cloud service providers, such as Microsoft, investing in Nvidia's stock could be seen as a sound move. The Financial Times reported that Microsoft doubled its purchases of Nvidia's Hopper chips in 2024 compared to any other competitor, which could indicate a positive outlook for the tech giant's financial performance.
