Can Nvidia Sustain its $4 trillion surge? A financial Deep Dive into Valuation, Growth, and Risk

Nvidia’s rise, driven by AI demand and a monopolistic foothold on GPU architecture has pushed it towards a $4 trillion valuation. Continuous strong revenue growth, and a high margin profile, has been a major driver behind this growth, but is this growth justified? This article examines Nvidia’s revenue growth, margin profile, CapEx trajectory, and its valuation multiples. 

Financial Snapshot:

Over the past years, Nvidia’s fiscal performance has delivered on almost every front. In fiscal year 2024 (FY2024) revenue more than doubled to $60.9 billion, and estimates suggest FY2025 may potentially surpass $120 billion if current demand trends continue. 

In addition to the gains in revenue gross margins have soared to 76%, something previously unheard of in the semiconductor industry. The large profit margin being held is thanks to a number of factors however the main one remains that Nvidia has bolstered its financial performance through premium pricing for AI accelerators.

Quarter 1 FY2025, Nvidia’s operating margin exceeded 58%, with net income reaching $14.88 billion. Again Nvidia operates with a high margin, however this figure does not tell the full story. Current net income is up 7x year-on-year (YoY).

Valuation: Rational Exuberance or AI Bubble?

Nvidia’s valuation remains a point of contention for analysts. Currently Nvidia has a forward P/E of 70x versus competitors Intel of 15x, and AMD of 45x. Current Price/Sales for Nvidia sits at 35x, versus Intel of 3x, and AMD of 10x. 

From a multiple perspective Nvidia is not priced for what it is today, but for what it could be. Nvidia currently sits at the cornerstone of the AI revolution across every sector: Cloud, Robotic, Industrial, and Biotech. The risk? If expectations are too high, and Multiples do not fall to match investor confidence, even strong results could disappoint. 

Revenue Concentration Risk: One Customer Segment to Rule Them All

As it stands as of Q1 FY2025, over 80% of Nvidia’s revenue is tied to its Data Center segment, with customers including Amazon, Microsoft, Google, and Meta. Although these companies are aggressively building AI infrastructure, this concentration risk is non-trivial. 

Due to this, a slowdown in hyperscale spend could materially impact Nvidia’s growth. Stunting growth like this could lead to lower investor confidence and a fall in Nvidia’s current stock price. 

Additionally export restrictions especially to China, which account for 17 - 20% of Data center revenue, increase the geopolitical risk faced by Nvidia. The increase in geopolitical risk means that Nvidia is potentially more susceptible to changes in the political landscape, and global tariff changes. 

Capital Efficiency: Asset-Light Margin-Heavy

Nvidia’s capital efficiency remains one of its most powerful financial advantages. Unlike rivals with contract partnerships (AMD) and fabs (Intel), Nvidia outsources chip production to TSMC.

Due to the outsourcing, Nvidia is able to maintain an asset-light model, limiting capital expenditures (CapEx). Lower CapEx means that there is improved free cash flow, which can be used for debt reduction, increased R&D, and to fix working capital needs. Currently R&D sits at $3.3 billion accounting for 13% of revenue. 

Conclusion: Great Company, Great Expectations

There is no doubt that Nvidia has had an impressive financial upcoming, through its blend of innovation, market leadership, and profitability. But for investors the critical question remains: Is Nvidia priced for what it is, or what it can become?

If there is continued demand for AI, Nvidia can maintain its dominance, and may even make the $4 trillion valuation look conservative in hindsight. On the other hand if demand plateaus or if competitors gain on the company, then today’s multiples may prove to be high showing overvaluation.

By: Lachlan Rowden