NVIDIA NVDA shares slid roughly 3.5% yesterday, extending a rough stretch that has now pulled the stock down more than 10% over the past five trading days. Much of the recent selling pressure could be tied to growing unease over NVIDIA’s financing arrangements with its own customers.
The company is reportedly in talks to backstop as much as $250 billion tied to a massive data-center project in Ohio that OpenAI would lease, on top of separate discussions to help finance up to $350 billion of OpenAI's chip purchases. The pattern could be worrisome for investors. It’s like NVIDIA funds a customer, and that customer spends the money on NVIDIA hardware. That ties NVIDIA’s fortunes increasingly to unprofitable customers like OpenAI.
Trading roughly 20% below the all-time peak it hit in mid-May, NVIDIA has cooled off considerably from the run that once made it the undisputed face of the AI trade— but the company’s growth engine is still very much intact.
Big Tech Not Pulling Back on AI Capex
Alphabet GOOGL just raised its 2026 capital expenditure guidance again, this time to a range of $195-$205 billion, up from $180-$190 billion, citing accelerated demand for AI infrastructure and cloud capacity— and management expects spending to climb further still in 2027.
Meta Platforms META lifted the lower-end of its 2026 capex range to $130 billion, now expecting to spend $130-$145 billion. Microsoft MSFT has held its spending plans steady, guiding about $50 billion in capex for its fiscal first quarter of 2027 and $175 billion for calendar 2026, with its finance chief pointing to strong "demand signals" across the business as reason for further growth ahead. Amazon AMZN has earmarked $200 billion in capex for 2026. The company reports results today after the close, and we'll find out then whether it follows Alphabet and Meta's footsteps in raising its capex.
Hyperscalers' relentless AI spending fuels NVIDIA’s growth. CEO Jensen Huang expects that spending to keep climbing, with NVDA projecting AI infrastructure investment to reach $3-$4 trillion annually by 2030, driven partly by agentic AI. NVIDIA’s GPUs remain the backbone of this boom, meaning its revenue growth is closely linked to hyperscalers’ spending. For now, there's no sign of a slowdown. With AI data center investment booming, NVIDIA’s prospects look solid.
NVDA’s Numbers Look Strong
The company’s first-quarter revenues jumped 85% year over year to $81.6 billion, with data center sales alone climbing 92% to a record $75.2 billion. Non-GAAP earnings per share surged 140%. Blackwell adoption is ramping quickly, and demand is broadening across hyperscalers, enterprises and sovereign AI projects alike.
The moat is widening too. Beyond GPUs, NVIDIA’s CUDA software ecosystem remains the industry default, making it hard for customers to switch platforms, and the company is now pushing into data-center CPUs with its new Vera line— a potential long-term growth driver on top of its core chip business.
Financially, the company is in a strong position. It closed its last reported quarter with $80.6 billion in cash and marketable securities against just $7.5 billion in long-term debt, and it generated $48.6 billion in free cash flow in the quarter. Management has backed that up with a 25-fold dividend increase and an $80 billion buyback authorization.
The Zacks Consensus Estimate for NVIDIA’s fiscal 2027 and 2028 implies year-over-year growth of 90% and 38%, respectively. EPS estimates have moved north over the past 60 days.
NVIDIA Is Undervalued
Despite those solid numbers and fundamentals, the stock has hardly moved on a year-to-date basis, significantly trailing chip peers like Advanced Micro Devices and Micron, which have more than doubled. That disconnect has compressed NVDA’s valuation even as its earnings base keeps expanding. NVIDIA currently trades at a forward 12-month P/E ratio of 17.59X, below its peer group.
Our Take
Yes, NVIDIA's circular financing deals are concerning, and Chinese trade restrictions remain an overhang. But the hyperscaler spending that actually drives NVDA's revenues shows no cracks— if anything, it's accelerating. The company's cutting-edge AI chips, strong earnings, fortress balance sheet, and attractive valuation make this recent pullback look like a screaming buy point for the stock.
NVIDIA stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Wall Street’s average price target for NVDA stock implies over 60% upside from current levels.
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Amazon.com, Inc. (AMZN): Free Stock Analysis Report
Microsoft Corporation (MSFT): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Meta Platforms, Inc. (META): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).