Since the beginning of 2023, Nvidia(NASDAQ: NVDA) has added a whopping $2.8 trillion to its market capitalization on the back of soaring demand for its data center chips, which are the gold standard for developing artificial intelligence (AI). At the same time, Nvidia stock is trading down 11% from its record high set in early January 2025 following a sharp sell-off over the past month.
The sell-off was sparked by news that China-based research lab, DeepSeek, has found a way to train competitive AI models with a fraction of the computing power (and financial resources) of its American peers. Investors feared this would trigger a collapse in the demand for data center chips, thus crushing Nvidia’s core business.
On Feb. 26, Nvidia will report its latest financial results for its fiscal 2025 fourth quarter (ended Jan. 31), and I think the information it contains will squash some of the recent investor concerns. Here’s how I predict the stock will react once the results hit the wires.
Image source: Nvidia.
Nvidia’s H100 graphics processor (GPU) was the hottest AI data center chip in the world during 2023, helping the company capture an incredible 98% market share. It remains a top seller but it was superseded by the H200, and then an entirely new generation of GPUs based on Nvidia’s Blackwell architecture.
The Blackwell-based GB200 NVL72 system can perform AI inference at 30 times the pace of the equivalent H100 system, paving the way for developers to deploy the most advanced AI models to date. Nvidia CEO Jensen Huang told investors demand was “insane” shortly after Blackwell’s broad release at the end of 2024, and from what we know so far, sales are living up to expectations.
However, the DeepSeek saga rocked Wall Street’s confidence in January. The Chinese start-up revealed it spent just $5.6 million to train its V3 AI model, yet it matches the performance of some of the best models from American start-ups like OpenAI, which have invested tens of billions of dollars to reach this point. Moreover, DeepSeek used older generations of Nvidia’s GPUs, which left investors wondering whether AI developers really need the latest and greatest Blackwell chips.
But some of those concerns have since been put to bed by Nvidia’s largest customers. Meta Platforms CEO Mark Zuckerberg thinks a drop in training workloads will be offset by inference workloads, which are now consuming an increasing amount of computing power because newer AI models spend more time “thinking” (which is known as test-time scaling). Meta expects to spend up to $65 billion on AI data center infrastructure during 2025, up from $39.2 billion last year, so it certainly isn’t pulling back.
Alphabet also plans to significantly increase its hardware investments this year, forecasting a record $75 billion in capital expenditures (capex). Then there is Amazon, which recently told investors it could spend over $100 billion in 2025 to build more AI infrastructure.
If all of Nvidia’s top customers are significantly increasing their investments in chips and data centers, it’s hard to envision a scenario where the company’s financial results disappoint. Wall Street’s consensus forecast (provided by Yahoo! Finance) suggests Nvidia’s fourth-quarter revenue will come in at $38.1 billion, which is even higher than the company’s own estimate of $37.5 billion.
If previous quarters are anything to go by, around 88% of that revenue will come from the data center segment, led by GPU sales.
The Q4 result would take Nvidia’s total fiscal 2025 revenue to a record $129.3 billion, representing 112% growth compared to fiscal 2024. But the company’s outlook for the future is also something Wall Street will be watching closely. Analysts are currently forecasting nearly $42 billion in revenue for Nvidia’s fiscal 2026 first quarter, so if management’s guidance tops that number, it will be a great sign that DeepSeek concerns are mostly overblown.
When Nvidia reported its last set of results for the third quarter on Nov. 20, its stock fell by 7% over the next five days or so. Short-term fluctuations in any stock are mostly just noise, and Nvidia had recovered almost completely just two weeks later. It speaks to the importance of maintaining a long-term view, especially with an opportunity like AI, which is likely to unfold over a period of years, not weeks or months.
The recent DeepSeek-related dip in Nvidia stock has created an enticing opportunity for investors. The stock currently trades at a price-to-earnings (P/E) ratio of 51.1, which is a 13% discount to its 10-year average P/E ratio of 59.2.
Plus, Wall Street expects Nvidia to deliver $4.44 in earnings per share during the current fiscal year 2026, placing its stock at a forward P/E ratio of just 29.2:
Data by YCharts
In other words, assuming Wall Street’s numbers prove to be accurate, Nvidia stock would have to soar by 102% this year just for its P/E ratio to trade in line with its 10-year average.
If Nvidia’s Q4 report adds further evidence that DeepSeek-related developments aren’t hurting demand for GPUs, its stock is likely destined for new record highs over the next few months. Considering the recent commentary and capex forecasts from the company’s biggest customers, I think the upcoming report on Feb. 26 is far more likely to deliver a positive surprise than a negative one.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
Prediction: Nvidia Stock Is Going to Surge After Feb. 26 was originally published by The Motley Fool
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