Where Will Nvidia Be in 1 Year?

The race in artificial intelligence (AI) is rapidly evolving, but many AI-related stocks, including Nvidia (NASDAQ: NVDA), have encountered some challenges in recent months. Since the start of the year, Nvidia's stock has dropped by 10%, largely due to concerns about tariffs imposed by the Trump administration and the potential impact on the economy.

This situation has left many investors pondering Nvidia's future over the next year. While making accurate predictions about a company's trajectory over a year can be difficult, there are several scenarios we can explore.

The Pessimistic Outlook for Nvidia

Currently, there are troubling signs concerning the U.S. economy. The ongoing discussions around tariffs are creating unease among many companies. Recent earnings reports from various businesses have cited economic concerns as the reason for their cautious growth forecasts for the upcoming quarters.

Despite a slow decline in inflation, economists are expressing worries that tariffs could lead to increased consumer prices. Indeed, JPMorgan has estimated a 40% chance of a recession occurring this year. Even high-growth companies like Nvidia could feel the impact of a recession, causing their growth rates to slow down. For example, Nvidia's data center revenue saw a remarkable rise of 93% in the last quarter, totaling $35.6 billion. However, this was a deceleration from a 112% growth in the prior quarter, raising concerns among some investors about potential further slowdowns.

Moreover, the emergence of competitors is also creating anxiety. When the China-based AI firm DeepSeek showcased its chatbot, many tech experts were surprised. DeepSeek utilized a less powerful Nvidia processor to train its model, suggesting that the most potent processors might not be essential for AI development.

While many tech giants are still committed to investing in data centers, any further indication that smaller AI companies can create comparable models with less investment might push large tech firms to seek alternatives and reduce their spend on Nvidia's advanced processors.

Lastly, U.S. government restrictions on AI chip exports could represent a challenge for Nvidia. The U.S. aims to keep its leading position in AI technology, which includes preventing other nations from accessing high-quality chips. While DeepSeek's success may cast doubt on this strategy, the restrictions could still potentially hinder Nvidia's sales. Approximately 56% of Nvidia's revenue comes from international markets, with about 17% from China. The ongoing enforcement of these export restrictions may complicate future sales for Nvidia.

The Optimistic Outlook for Nvidia

However, it may be premature to sell Nvidia stock. Despite the valid concerns regarding tariffs, chip sales, and a general pessimism surrounding tech stocks, several major trends could continue to support Nvidia's growth over the next year and beyond.

Even in light of the potential competition from DeepSeek, major tech companies are still investing heavily in data centers and haven’t switched to less costly processors. For instance, in recent months companies like Alphabet and Meta Platforms have pledged to increase their capital expenditures to $215 billion, representing a significant 45% rise from the previous year.

In addition, companies like Oracle, OpenAI, and SoftBank have announced plans to invest up to $500 billion over the next four years to develop AI data centers in the U.S., showcasing their commitment. This aligns with Nvidia's CEO Jensen Huang's prediction that tech firms might spend as much as $2 trillion on data centers in the next five years.

Nvidia is well-positioned to reap the benefits of this investment, as it commands an estimated 70% to 95% share of the market for AI accelerator processors, a lead that rivals would find difficult to challenge.

Additionally, Nvidia continues to innovate with new products. Their latest AI processor, the Blackwell series, is reportedly seeing the fastest ramp-up in sales in Nvidia's history. During the last quarter, Blackwell-provided sales were approximately $11 billion, constituting 31% of the data center revenue, highlighting the continuing role of new technologies in driving growth.

Moreover, the artificial intelligence market opportunity is vast and expanding. It’s not merely a fleeting trend; companies across various sectors are organizing themselves around AI principles. Research from PwC suggests that AI could boost global GDP by $15.7 trillion within the next five years.

Even if an economic downturn does appear, the consensus is that it’s unlikely to pause AI’s development. The technology's significance cannot be overlooked, and businesses are driven by the fear of lagging behind in its advancement.

Which Scenario is More Likely?

While there are valid short-term concerns regarding the economy and tariffs, the long-term potential of AI is likely to sustain Nvidia's growth in the coming year and beyond. Although Nvidia's stock might face further price fluctuations in response to ongoing market concerns, the overarching trend in tech investments suggests that Nvidia still has significant growth potential ahead.

Nvidia's CEO has indicated that future AI models may require 100 times the computing power needed today. Even if this is a slight overestimation, the demand for Nvidia's processors may remain high in the foreseeable future.

Nvidia, AI, Economy