Can Nvidia Stock Still Reach $200 by 2025?

Nvidia (NVDA) faced a significant downturn on January 27, with its stock plummeting by 17% in a single day. This drop was primarily due to doubts surrounding its future, triggered by a cost-efficient artificial intelligence (AI) model introduced by the Chinese start-up DeepSeek. DeepSeek's assertion that it trained its R1 model for just $6 million, making it competitive with OpenAI's more expensive models, sparked investor concerns.

Nvidia has enjoyed remarkable financial success over the past few years, largely driven by the high demand for its premium graphics cards, which are essential for training and deploying AI models. However, DeepSeek's claims about achieving high performance at a lower cost have cast new doubts on the future demand for Nvidia's chips.

Additionally, other issues have emerged that have further impacted Nvidia's stock, including potential restrictions on chip exports and a slowdown in AI infrastructure spending. These factors have been intensified by DeepSeek's advancements.

Despite these challenges, it may be premature for investors to panic and sell Nvidia stocks based on this latest news. Several favorable indicators suggest that Nvidia could rebound and potentially reach the $200 mark.

Anticipated Surge in AI Infrastructure Spending in 2025

Concerns about a slowdown in AI infrastructure spending appear unfounded when examining recent announcements from key players in the tech sector. For instance, Microsoft announced a substantial 43% increase in its capital expenditures for the current year, totaling $80 billion, as it plans to build additional AI data centers.

Similarly, Meta Platforms has revealed plans to boost its capital expenditures by roughly 50% in 2025 compared to last year. Also noteworthy is a recent announcement from a coalition including SoftBank, OpenAI, Oracle, and the AI investment firm MGX from Abu Dhabi. They have pledged to immediately deploy $100 billion for the development of AI infrastructure in the U.S. as part of the Stargate Project.

Given these developments, one might wonder if the lower costs associated with training DeepSeek's model will push Nvidia's customers to cut spending on its chips. Although it is too early to draw conclusions, there remains a strong possibility that the demand for Nvidia's data center graphics cards may not waver. In fact, the efficiency demonstrated by DeepSeek could prompt more companies to create cost-effective AI models, likely ensuring sustained compute demand.

Thus, it is reasonable to expect that AI-related spending by major U.S. tech companies could see an upward trend again in 2025. This would bolster Nvidia's chances of maintaining its impressive revenue and earnings growth trajectory from recent years.

Nvidia is poised to benefit significantly from increased spending in AI technologies in 2025 due to its leading position in the data center graphics processing unit (GPU) market. Various estimates suggest that the company controls between 70% and 95% of the AI data center GPU market, and it is likely closer to the higher end of that range. Competitors such as AMD and Intel have struggled to make meaningful inroads into the AI chip sector, with AMD expected to generate considerably less revenue than Nvidia from AI chip sales in 2024, and Intel unlikely to meet its AI chip revenue aims for the same period.

This positions Nvidia well to capture most of the additional spending on AI chips this year. Coupled with Nvidia's partner, Taiwan Semiconductor Manufacturing's plans to double its advanced chip packaging capacity, Nvidia should be able to meet the skyrocketing demand from tech giants. Analysts predict that Nvidia's earnings growth in fiscal 2026, which aligns with 11 months of 2025, could surpass current expectations.

This potential for growth forms a strong case for Nvidia to reach the $200 mark this year.

Pathway to $200 Explained

For Nvidia's stock to reach the $200 milestone, it must increase by 55% from its current levels. Consensus estimates indicate that Nvidia's earnings are expected to rise by 50% in fiscal 2026, leading to earnings of $4.45 per share. However, some bullish projections suggest a possibility of a 101% increase in earnings.

Nvidia could outperform these average earnings expectations due to heightened spending on AI infrastructure and improved productivity from TSMC. If Nvidia achieves a 75% increase in earnings, it could report $5.16 per share for fiscal 2026. If we apply a forward earnings multiple of 40, which aligns with Nvidia's five-year average valuation, this could drive Nvidia's stock price to $200.

Importantly, the forward earnings multiple of 40 being utilized is lower than the stock's current trailing earnings multiple, indicating that this AI-focused stock could yield substantial gains, even at a conservative valuation.

Nvidia, AI, Stocks