NVIDIA (NVDA 3.78%) has been one of the top stocks on the market over the past year, delivering investors outstanding gains of 142% at the time of writing, but a closer look at the semiconductor giant’s recent share price action suggests its stunning rally may finally have come to an end.

Nvidia shares hit a 52-week high on June 20. Since then, however, the stock has declined 22% in value. Concerns have been raised about Nvidia’s high valuation and its ability to sustain its staggering growth beyond next year. Moreover, it seems that not all tech giants have been trying to get their hands on Nvidia’s chips to train artificial intelligence (AI) models.

AppleFor example, recently announced that it will use Tensor Processing Units (TPUs) from alphabetGoogle’s division is to train the Large Language Model (LLM) that powers the AI ​​capabilities of Apple’s Intelligence suite. This could have been a major Nvidia contract, but AMD got the nod. Developments like these seem to have weighed on Nvidia’s stock price recently.

But is this significant drop in share price an opportunity for savvy investors to buy this sought-after AI stock in anticipation of it regaining momentum and delivering healthy gains in the coming year? Let’s find out.

Demand for AI chips remains solid, and that bodes well for Nvidia

Analysts estimate that Nvidia’s market share in graphics processing units (GPUs) for AI data centers is between 70% and 95%, putting the company in a solid position to benefit from the healthy demand for AI accelerators in both the short and long term. For example, recent results from competitor Nvidia show that modern micro devices (AMD -3.44%) indicate that the high demand for AI chips is not abating.

AMD reported a whopping 115% year-over-year increase in its data center revenue to $2.8 billion in the second quarter of 2024. The company noted that this impressive increase was “primarily due to the sharp increase in AMD Instinct GPU shipments,” which are AI accelerators used in data centers.

It’s also worth noting that AMD sold just over $1 billion worth of its MI300 AI GPU last quarter. AMD now expects to sell $4.5 billion worth of data center GPUs in 2024, up from the previous forecast of $4 billion. That’s also a nice increase from the $3.5 billion data center GPU forecast AMD released in January of this year. This Nvidia competitor is enjoying solid success right now.

That’s not the end of Nvidia’s growth, however. Nvidia is a much bigger player than AMD in the data center GPU market, and it’s growing much faster, too. Nvidia sold $22.6 billion worth of data center chips in the first quarter of fiscal 2025, with revenue in the segment up a whopping 427% year over year.

There are two reasons why Nvidia has seen such phenomenal growth in the data center space. First, we have seen that the company has a dominant position in this market. Second, the AI ​​chip market is growing at a solid annual rate of 68%, according to market research firm TechNavio. The firm estimates that the AI ​​chip market could grow by $390 billion between 2023 and 2028, so it will not be surprising if Nvidia’s business continues to grow at a healthy pace in the future.

Investors can expect solid profits next year

UBS analyst Timothy Arcuri estimates that Nvidia could generate revenue of $204 billion in calendar year 2025 (which will coincide with most of fiscal year 2026). For comparison, Nvidia is expected to generate revenue of $120 billion in the current fiscal year 2025. Arcuri’s estimate therefore suggests a 70% jump in revenue in the next fiscal year.

Arcuri’s estimate is based on healthy demand for Nvidia’s new Blackwell generation of AI chips. The analyst points out that data center operators are placing huge orders for liquid-cooled server racks to house Nvidia’s Blackwell chips. As a result, Nvidia could ship 69,000 Blackwell-based systems next year, generating $9 billion in revenue for every 5,000 systems shipped.

In addition, Nvidia could generate earnings of $4.95 per share in 2025. Again, that’s well above the consensus estimate of $3.74 per share for fiscal 2026 (which coincides with 11 months of the 2025 calendar year). Assuming Nvidia’s fiscal 2026 earnings come in at the consensus estimate of $3.74 per share, its stock price could rise to $161 next year based on its earnings multiple of 43 (which is a discount to the U.S. technology sector’s earnings multiple of 45).

That would be a 50% increase from current levels. However, if Nvidia’s earnings come closer to Arcuri’s estimate, investors could expect further upside for this semiconductor stock. For that reason, savvy investors might consider using Nvidia’s decline to buy more shares, as the recent weakness could be temporary thanks to the huge AI opportunity the company presents.