Nvidia (NASDAQ:NVDA) stock is up 361% over three years. That means a £10,000 investment made then would now be worth around £46,500. That’s accounting for a small depreciation in the pound over the time — it’s important to factor in currency fluctuations when a stock is denominated in another currency, in this case, dollars.

A broader view

Many investors will be familiar with Nvidia’s rise, but others may be new to the stock. So, why has it surged? Nvidia’s meteoric rise has been driven by its dominance in the artificial intelligence (AI) chip market.

The company makes graphics processing units (GPUs). Originally designed for gaming, these GPUs have become essential for AI and machine learning. They’re responsible for powering everything from data centres to autonomous vehicles. Nvidia’s GPUs excel at parallel processing, making them ideal for handling the massive amounts of data required for training AI models.

The surge in demand for AI capabilities, exemplified by the launch of ChatGPT and other large language models, has accelerated Nvidia’s growth. The company’s market value has soared, reaching $3.4trn in June 2024, making it, for a period, the largest company by market value.

Uncertainty spreads

Nvidia’s stock has fallen sharply. It’s currently down around 25% from its highs. Several factors are responsible for this. One is the emergence of Chinese startup DeepSeek. Its cost-effective AI model has raised concerns about Nvidia’s market dominance.

DeepSeek’s innovative approach challenges the necessity of high-end chips, potentially reshaping the AI landscape and impacting Nvidia’s future demand. That’s the bear case anyway. Some analysts are saying DeepSeek has helped democratise AI and will increase demand for it.

Geopolitical tensions, particularly President Trump’s renewed tariff talks, have introduced uncertainty around costs and supply chains, affecting tech companies like Nvidia. Ongoing export restrictions to key markets such as China, Singapore, and Vietnam have further dampened growth prospects.

What’s more, Nvidia’s rich forward valuation — in relative terms — makes it susceptible to sharp corrections, as even strong earnings may fail to meet lofty expectations. Some investors worry about potential oversupply in the AI chip market as competitors ramp up production. Broader economic concerns, including inflation and interest rate uncertainties, have led to increased market volatility.

Additionally, after Nvidia’s meteoric rise, some investors — including institutional investors — may be cashing in on gains, contributing to downward pressure. These factors combined have led to increased uncertainty and volatility in Nvidia’s stock, despite its continued leadership in the AI chip space.

Improving valuation and long-term dominance

Nvidia’s stock appears relatively attractive with a price-to-earnings-to-growth (PEG) ratio of 0.8. This suggests it is cheap when factoring analysts’ growth forecasts. Of course, forecasts can change.

Looking ahead, arguably beyond the forecasting period, Nvidia is poised to potentially dominate the robotics industry. The company’s integrated ecosystem, including its Omniverse platform, advanced GPUs, and AI foundation models, positions it well to lead in this emerging sector. With the AI robotics market expected to grow significantly, Nvidia’s technological edge could translate into substantial future growth.

Personally, I’m holding tight with my current position. I’ve never been tempted to sell, but I could possibly be tempted to buy more as developments unfold.