So, Nvidia shareholders have little to fear from competition in the near term. Indeed, CFO Colette Kress says Blackwell gross margins should be in the mid-70% range after the production ramp. In other words, while gross margin may drop a little more in the next quarter or two, it should rebound thereafter. That pokes a hole in the theory that Nvidia is imminent danger of losing pricing power.

Indeed, Morgan Stanley analyst Joseph Moore recently commented, “The market tends to underestimate the difficulty of competing with Nvidia.” That should become increasingly clear next year, and the stock could soar as investors fully appreciate Nvidia’s dominance.

President-elect Donald Trump has proposed lowering the federal corporate income tax rate to 15%. While a lower corporate tax rate has not always led to a boom in the broader stock market, it could move the needle for individuals companies by boosting profit margins. In turn, excess capital could be returned to shareholders through stock buybacks and dividends.

Importantly, Nvidia repurchased about $26 billion worth of its stock during the 12-month period that ended in June 2024. Only three other companies in the S&P 500 allocated more to share buybacks during that period: Apple spent $96 billion, Alphabet spent $63 billion, and Meta Platforms spent $41 billion, according to S&P Global.

Nvidia could lean further into stock buybacks if the corporate tax rate was lowered. That would accelerate earnings-per-share growth by reducing the outstanding share count. So, a reduction in corporate taxes could result in Nvidia’s earnings growing more quickly than Wall Street analysts anticipate, which could drive shares higher.

Admittedly, while the Trump administration could get legislation through Congress in 2025, any changes would not take effect until the next year. That means Nvidia would not see any benefit in 2025 even in the best case scenario. But the stock market is forward-looking, so if investors believe the tax rate will decline, the impact could be priced into the stock next year.

Nvidia’s market value has increased more than nine-fold since the beginning of 2023, but the company’s stock still trades at a surprisingly reasonable valuation, especially in comparison to other AI companies.

Wall Street expects Nvidia’s adjusted earnings to grow 50% over the next year, and the stock currently trades at 52.7 times adjusted earnings. Those numbers give a price-to-earnings-to-growth (PEG) ratio slightly above 1. Listed below are PEG ratios (calculated in exactly the same manner) for other popular AI stocks:

• Alphabet: 1.6

• Amazon: 1.7

• Apple: 3.5

• Meta Platforms: 1.8

• Microsoft: 3.9

• Palantir: 6.2

In general, PEG ratios below 1 are considered cheap, and values between 1 and 2 are seen as reasonable. In that context, Nvidia shares are remarkably inexpensive at their current share price of $138, which positions the stock for market-beating returns next year.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and Palantir Technologies. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and S&P Global. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Prediction: Nvidia Stock Will Soar in 2025, and Not Just Because the AI Boom Is Building Steam was originally published by The Motley Fool