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For technology investors, Nvidia (NASDAQ: NVDA) has been the gift that keeps on giving. Shares in the chipmaker are up 28.5% year to date. And this caps off a 1,110% rally over the last half-decade as the company benefits from surging demand for its AI data center hardware.
But how much longer can the boom continue? Let's dig deeper into the pros and cons of Nvidia to decide if it's still a good buy in October.
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As of late 2026, the global AI industry shows no signs of slowing down. Analysts at Goldman Sachs estimate that by the end of the year, U.S. hyperscalers will have invested a whopping $800 billion in this opportunity, with much of that going to buy data center hardware designed and sold by Nvidia and its peers. They expect that annual investment total will reach $1.2 trillion in 2027 and $1.4 trillion in 2028 for a total of $7.6 trillion by 2031.
If these projections are correct, Nvidia's second-quarter earnings demonstrate the type of results investors should start getting used to.
Revenue soared 106% year over year to $96.2 billion, driven by continued outperformance in the data center segment, which provides AI infrastructure like GPUs, accelerators, and networking equipment. The company's gross margins remain extremely high at 75%, which suggests clients are still willing to pay a premium for its cutting-edge products.
If something looks too good to be true, it probably is. And the biggest red flag about Nvidia is actually its rock-bottom valuation. Despite enjoying triple-digit growth, the stock's forward price-to-earnings (P/E) of just 24 is in line with the Nasdaq-100 average. On one hand, this simply means Nvidia's earnings are growing faster than its stock price can keep up. On the other hand, it also suggests many on Wall Street fear the boom won't last. There are some big reasons why the pessimists might be correct.
According to a recent Wall Street Journal study, U.S. consumers and businesses will need to spend the equivalent of 8.8% of the country's annual GDP on AI-related products and services by 2032 to justify the capital investment flowing into the industry today.
That amount ($3.5 trillion) represents significantly more than annual spending on food or energy, which is an incredibly high bar that seems unlikely to be crossed, even if AI eventually becomes an important part of the economy. And this doesn't even account for the fact that competition and advancing technology will likely bring down prices and margins across the industry. All this is bad news for Nvidia, as it has built its entire business on selling high-margin AI infrastructure.
As of the second quarter, Nvidia's data center segment accounts for over 96% of its revenue, making it exceptionally vulnerable to what appears to be an inevitable slowdown in data center build-outs.
Nvidia has a lot going for it in October and beyond. The company combines explosive, innovation-led growth with a surprisingly low valuation of just 24 times forward earnings. And excitement is starting to rise again after management revealed a $235 billion buyback program, which will help the company return some of its profits to shareholders. That said, investors should look at everything in the full context.
Nvidia's buyback sounds huge on the surface, but it pales in comparison to the company's $5.45 trillion market capitalization. The larger a company becomes, the harder it is to move the needle. Furthermore, Nvidia will likely buy back shares near its all-time highs, at the peak of what increasingly looks like an AI bubble. The stock remains highly exposed to a slowdown in data center spending, making it still a little too risky for comfort despite its incredible results.
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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Should You Buy Nvidia Stock in October? was originally published by The Motley Fool
