Earlier this year, reports emerged that Microsoft (MSFT) was “slowing or pausing” some of its data center construction. This served as a major blow to artificial intelligence (AI)-related investments, leading some skeptics to declare that the AI “bubble” could soon burst. 

Months later, and heavy hitters Nvidia (NVDA) and Microsoft (MSFT) both are confident that data center demand remains strong. Senior Director of Corporate Sustainability at Nvidia Josh Parker said at a recent conference that “We haven’t seen a pullback,” and that compute and energy demand is only going to increase due to AI.

So, where does that leave Nvidia, whose stock is down 17.2% on a YTD basis, after years of astounding returns? In a pretty good place in my reckoning, and here’s why.

Sound Finances

With a market cap of $2.6 trillion, Nvidia is one of the most valuable companies in the world. Its revenue and earnings have clocked impressive compound annual growth rates (CAGRs) of 39.48% and 60.79%, respectively.

Moreover, the company continued on its spree of beating Street expectations with its results in the most recent quarter. Nvidia reported a record-breaking quarterly revenue of $39.3 billion, representing a sharp 78% surge compared to the same quarter in the previous year. A significant contributor to this performance was the data center division, which posted a remarkable 93% year-over-year increase, bringing in $35.6 billion and solidifying its role as a primary engine of the company’s expansion.

The firm also saw its earnings per share rise 71% from the previous year to reach $0.89. This marks the ninth consecutive quarter in which Nvidia has surpassed analysts’ earnings expectations. However, not every indicator followed the same upward trend. The company’s gross margin slipped to 73.5%, down from 76.7% a year earlier, suggesting that intensifying market competition might be beginning to exert some pressure on profitability.

From a cash flow standpoint, Nvidia delivered strong results. Operating cash flow increased significantly to $16.6 billion for the quarter, up from $11.5 billion in the comparable period last year. The company closed the quarter with an impressive $43.2 billion in cash and equivalents and reported no outstanding short-term debt, reflecting a solid balance sheet and maintaining a high level of financial flexibility for future strategic initiatives.

Encouraging Strategic Drivers

As highlighted in my previous analysis, Nvidia’s dominant position in the AI and data infrastructure ecosystem continues to be reinforced by surging capital expenditure commitments from hyperscale cloud operators such as Microsoft, Amazon (AMZN), Meta (META), and Google (GOOGL), alongside the company’s deep-rooted integration of software, silicon, networking, and cloud-native capabilities.

A defining element of Nvidia’s technological edge lies in its comprehensive command over the entire computing stack. The company architects its own chips, engineers the foundational software layers, and produces the physical hardware that powers most of the world’s major cloud infrastructures and enterprise AI systems. Such vertical cohesion is a rarity in the technology sector and has empowered Nvidia to maintain pricing power while preserving industry-leading margins.

What also sets Nvidia apart is the sheer depth and stickiness of its developer base. The CUDA ecosystem now encompasses more than 5.9 million developers who are tightly coupled with Nvidia’s programming frameworks, compilers, and tooling infrastructure. CUDA has evolved beyond a software suite into a systemic platform that shapes how AI is built and deployed. This entrenched developer momentum, supported by a predictable upgrade cadence and seamless deployment architecture, has made switching ecosystems not merely a hardware challenge but an extensive overhaul of existing AI workflows.

Analyst Opinions on NVDA Stock  

Analysts have deemed Nvidia stock a “Strong Buy” with a mean target price of $168.35, which denotes upside potential of about 52% from current levels. Out of 43 analysts covering the stock, 37 have a “Strong Buy” rating, two have a “Moderate Buy” rating, and four have a “Hold” rating.