In recent weeks, Nvidia's stock has experienced a noticeable decline, primarily driven by a cooling enthusiasm among investors towards semiconductor companiesThis downturn comes on the heels of the Federal Reserve's comments on the federal funds rate, which contributed to a broader market retreatHowever, I contend that this dip creates a unique buying opportunity for investors, especially as Nvidia embarks on the expansion of its Blackwell GPU projectI foresee that Nvidia could emerge as a premier investment in the fiscal year 2025. Furthermore, Alphabet's recent announcement about significant breakthroughs with its Willow quantum computing chip suggests potential revolutionary advancements across the chip industry, encompassing the data center marketThe current dip in Nvidia’s stock price may signal an advantageous moment for entry, particularly as the company is firmly entrenched in a long-term upward trajectory that is poised to persist for many years.

After the semiconductor titan disclosed its third-quarter earnings and issued a strong outlook for the upcoming fourth quarter, I have rated its stock as a strong buy

My optimism largely stems from my high expectations surrounding Nvidia's impending Blackwell GPU release, coupled with the company’s exceptional track record in executionNotably, Nvidia has announced a $50 billion stock repurchase plan, strengthening the stock's foundationEnhancements in the accelerated computing market, ignited by Google’s recent advancements in quantum computing, are set to provide Nvidia with even further benefits.

Google has taken center stage recently due to its groundbreaking progress in quantum computing, which has underscored the acceleration powers of computer chipsThe company claims that its Willow quantum chip has managed to solve mathematical problems that would have taken other supercomputers over a quintillion years to complete

This monumental achievement highlights the rapid pace of technological advancements currently unfolding

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As processing technologies advance, the industry finds itself on the cusp of a transformation in the GPU market, which happens to be the primary revenue generator for NvidiaDominating the industry with over 90% market share, Nvidia stands as a major beneficiary of the surging demand for AI GPUsSignificantly, Nvidia, much like Google, has recognized substantial growth opportunities in accelerated computingPredictions suggest that Nvidia expects GPU performance to see exponential growth—up to a thousand times within the next decade—presenting enormous upgrade prospects for the company and its extensive clientele of data centers.

The reasons for Nvidia's advantageous position in capitalizing on productivity enhancements are threefold:

First, the upgrade and refresh cycles are set to shorten significantly, potentially allowing Nvidia to ramp up GPU shipments quicker than ever before

Both Nvidia and AMD have noted their intention to alter product cycles to every year to ensure customers benefit from the latest technological advancementsAs AI-supported chips are released more frequently, this shrinking upgrade cycle could favor average selling pricesGiven the current scarcity in AI-optimized GPUs, price trends could turn decidedly favorable for GPU designers and manufacturers. Secondly, as the design and manufacturing processes of new CPUs and GPUs grow increasingly complex and capital-intensive, established chip design companies like Nvidia could hold a competitive advantage that might enable them to gradually expand their market shareNvidia has a longstanding history of developing chips such as the H100 and Blackwell, providing notable advancements in performance while significantly reducing power consumption—and delivering these products promptly

Businesses capable of efficiently addressing shorter upgrade cycles stand poised to benefit from reduced delivery times.Lastly, AI factories are set to drive demand for GPU-accelerated computing, greatly amplifying the demand for data centers and potentially unlocking a multi-trillion-dollar market opportunity for NvidiaThe company projects that the emergence of AI factories could push the GPU market opportunity to a staggering $2 trillion.

Looking ahead to fiscal year 2025, Nvidia’s Blackwell initiative is expected to sustain growth, and the 2026 Rubin chip platform is anticipated to continue this trend, bolstering the company’s revenue and operating incomeIn fact, Nvidia has generated an impressive $61.3 billion in operating income over the first three quarters of this fiscal year—an astonishing increase of 16 times compared to the entire fiscal year 2020. At the current run rate, Nvidia's gross profit for the full fiscal year 2025 is projected to reach $82 billion, a remarkable 22-fold rise compared to fiscal year 2020.

As for the upcoming year, I firmly believe that Nvidia has immense potential to significantly enhance its revenue and operating income, majorly driven by the accelerating growth of machine learning and generative AI models

Based on the current growth trajectory, Nvidia has the capability to generate over $100 billion in operating income and free cash flow for the following year.

Nvidia

Earnings, especially free cash flow, play a vital role as they can be used for dividends and stock buybacks, making free cash flow a key metric to monitorIn Q3 of 2025, Nvidia generated $16.8 billion in free cash flow within a single quarter, translating to an annualized run rate suggesting the company could produce approximately $67 billion in free cash flow over the next twelve monthsWith surging GPU product sales, Nvidia's free cash flow saw a staggering 138% year-over-year increase in Q3. Should Nvidia's Blackwell shipments experience a significant uptick, it is likely the company's free cash flow will accelerate.

Looking to the future, Nvidia's free cash flow is likely to see a considerable rise, potentially surpassing the $100 billion annual threshold by 2025. I estimate a 55-65% year-over-year increase in free cash flow for Nvidia, with projections placing it between $101 billion and $107 billion

This would firmly establish Nvidia as one of the most robust technology companies in terms of free cash flow globally, maintaining quarterly free cash flow around $25 billion, alongside giants like Google, Apple, and Microsoft.

Given Nvidia's enduring potential in the AI GPU market, I conclude that its valuation is significantly undervaluedMy optimism regarding Nvidia stems from its dominant position in the data center market coupled with the corresponding rise of AI factories, all of which are expected to drive demand for AI GPUs through the roofCurrently, Nvidia boasts a price-to-earnings ratio of 30.4, compared to AMD's 23.4.

AMD has also seen its valuation take a hit lately, despite reporting a strong third-quarter earnings and being in the early stages of the large-scale rollout of its MI300X accelerator

AMD could also emerge as a beneficiary from the potential shortage of Nvidia's Blackwell, as discussed in detail.

In my previous analysis on Nvidia, I inferred that if the company’s earnings per share (EPS) could grow at an average rate of 25% annually over the next five years, then its fair value would range between $315-$350 per shareI still consider these estimates to be realistic and attainable, and indeed, given the accelerating computational opportunities, the rise of AI factories, and the overall expansion of the potential market, Nvidia's future performance could significantly exceed these conservative estimates.

As the market continues to fervently pursue AI-driven productivity growth, I believe the company would find it nearly impossible to resist the compelling investments in AI-optimized chips

With limited production capacity and rapid technological advancements, Nvidia is likely to benefit from faster product release cycles and potentially rising average selling pricesIf, however, Nvidia experiences a slowdown in free cash flow growth or a diminishing demand for Blackwell or the 2026 Rubin as time progresses, my outlook on Nvidia would certainly be subject to change.

While the enthusiasm around Nvidia has indeed waned in recent weeks, particularly over the past week, the company boasts one of its strongest product roadmaps in yearsMoreover, Google’s notable leaps in quantum processing capabilities further signifies the immense innovative potential residing within the GPU marketNvidia is poised to unveil its next-generation GPU, Rubin, in 2026, potentially positioning itself as the primary benefactor of accelerating advancements in GPU technologies.

With Nvidia's stock recently experiencing declines, I perceive this as an inviting opportunity for long-term investors