Nvidia's fair value: what Morningstar's analysis reveals after earnings

2025-03-05 nvidia

Chicago, Wednesday, 5 March 2025.
Morningstar’s analysts consider Nvidia’s stock fairly valued. This assessment follows a period of rapid expansion in the company’s data center business. It surged from $3 billion in fiscal year 2020 to $115 billion in fiscal year 2025. Nvidia’s Q1 earnings exceeded expectations. The company forecasts $43 billion in revenue for the next quarter. Despite this continued growth, the stock’s valuation sparks debate among investors. Some analysts believe NVDA is still undervalued.

Nvidia’s financial performance

Nvidia’s Q4 fiscal year 2025 earnings showcased significant growth [7]. The company reported adjusted earnings of $0.89 per share, exceeding the Zacks Consensus Estimate of $0.84 [7]. Revenues reached $39.33 billion, surpassing the Zacks Consensus Estimate of $37.72 billion [7]. This represents a 4.268 = 4.27% surprise [7]. Data Center revenues stood at $35.58 billion, also above the consensus estimate of $33.51 billion [7]. For Q1 fiscal year 2026, Nvidia anticipates revenues of $43 billion, plus or minus 2% [1][7].

Market reaction and analyst views

Despite positive earnings, Nvidia’s stock experienced a downturn [2][6]. The stock price fell 7.2% following the release of Q4 results that beat expectations [2]. On February 27, 2025, the stock price decreased by 8.5% [7]. However, some analysts view this as a buying opportunity [2][7]. Morningstar analyst Brian Colello suggests that Nvidia now appears undervalued [2]. Zacks.com also believes that Nvidia offers a lucrative buying opportunity for the remainder of 2025 [7].

Factors influencing valuation

Several factors influence Nvidia’s valuation. The company’s dominance in AI model training, driven by its data center GPUs and Cuda software, plays a key role [1]. Nvidia is expanding its presence within AI, including areas like networking, software, and services [1]. The growth in the data center business has been substantial, increasing from $3 billion in fiscal year 2020 to $115 billion in fiscal year 2025 [1]. This growth underscores Nvidia’s strong position in the AI market [1].

Potential challenges and market dynamics

Nvidia faces potential challenges despite its strong market position [1]. The company’s non-GAAP gross margin was 73.5%, a contraction of 3.2% year-over-year and 1.5% sequentially due to the Data Center segment [7]. Some leading cloud vendors might shift to alternative open-source tools to increase competition in the AI training software space [1]. Also, Nvidia’s gaming GPU business is subject to boom-or-bust cycles depending on PC demand and cryptocurrency mining [1]. Investors are rotating out of technology stocks [3]. Nvidia’s stock is down more than 10% in 2025 [3].

Future outlook and investment strategy

Nvidia’s future prospects remain strong despite short-term market fluctuations [7]. The four major data center operators (Meta, Alphabet, Microsoft, and Amazon) have pledged $325 billion as AI expenditure in 2025 [7]. The company’s current year expected revenue and earnings growth rates are 45% and 41.1%, respectively [7]. Zacks.com suggests buying the stock on every dip and creating a systematic investment plan to do cost averaging [7]. They advise holding the stock for the long term, as the company’s strong execution and robust future projections will generate more value [7].

Bronnen

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