Given that it’s already the world’s largest company, it’s natural to wonder how much larger Nvidia (NVDA +4.39%) can get. I think the answer is fairly simple: much larger. Though hyperscalers have already set new records year after year with how much they are devoting to capital expenditures, the future still looks like it will bring even higher spending, which bodes well for a company that is supplying so much of the key hardware for artificial intelligence (AI).
I think Nvidia’s still a top buy, and it all has to do with future demand and its current pricing.
Image source: The Motley Fool.
The AI build-out is just getting started
This year, the big four AI hyperscalers plan to spend around $650 billion on data center investments.
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Current Price
That’s a ton of money, but this year’s growth has already been fairly accounted for in stock prices; the question is, what will 2027 hold? From Nvidia’s internal projections, it holds a lot more. It estimates that global data center capital expenditures will reach $3 trillion to $4 trillion annually by the time 2030 rolls around, up from about $600 billion in 2025. That’s a major ramp-up, and Alphabet (GOOG 0.54%) (GOOGL 0.49%) just confirmed part of it. During its latest earnings call last month, management noted that it will make a “substantial increase” in capital expenditures in 2027 compared to 2026. While other hyperscalers haven’t made similar statements yet, it’s still early. It won’t surprise me to hear similar commentary from them during next quarter’s results.
The runway is still massive for AI spending, and with Nvidia being a major supplier in this industry, it’s set to benefit. However, the market is really only projecting one year’s worth of strong growth into its stock price.
NVDA PE Ratio data by YCharts
With a price-to-earnings ratio of 45, Nvidia is clearly expensive based on that valuation metric. But on a forward earnings basis, which considers expected growth this year, it trades at a more reasonable ratio of 26. When you use next year’s expected earnings, that figure falls to 19. Moreover, Wall Street analysts have consistently underprojected Nvidia’s growth rate, so this metric may be underselling Nvidia’s potential.
Regardless, I think positive news regarding 2027’s capex will push the stock higher throughout the rest of the year, especially as more companies divulge their plans, which makes Nvidia a solid stock to buy today.
Keithen Drury has positions in Alphabet and Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
