Nvidia (NVDA 4.11%) was one of the market's hottest growth stocks of the past decade. From the first trading day of 2014 to the last trading day of 2024, its stock surged 33,430%. From fiscal 2015 to fiscal 2025, which ended in January, its revenue grew at a compound annual growth rate (CAGR) of 39% as its earnings per share (EPS) increased at a CAGR of 58%.

That breakneck growth was initially driven by its brisk sales of graphics processing units (GPUs) for gaming, which were also used for professional graphics production and cryptocurrency mining. But over the past few years, its data center GPU sales skyrocketed as the generative AI market exploded.

Image source: Getty Images.

Nvidia's data center GPUs can process artificial intelligence (AI) tasks much faster than standalone CPUs, so all of the world's top AI companies -- including OpenAI, Microsoft, and Alphabet's Google -- use its chips. As the leading seller of the picks and shovels for the AI gold rush, Nvidia naturally became the bellwether of that booming market.

However, Nvidia's stock has declined about 23% this year as the Trump administration's unpredictable tariffs, the intensifying trade war, and other macroeconomic headwinds drove investors toward more conservative investments. Let's see if Nvidia's becoming an undervalued growth stock after that pullback -- or if it's a falling knife which could cut bargain-seeking investors.

How fast is Nvidia growing?

In fiscal 2025, Nvidia's revenue rose 114%, its adjusted gross margin expanded 170 basis points to 75.5%, and its adjusted EPS increased 130%. Most of that growth was driven by its data center revenue, which surged 142% to $115 billion and accounted for 88% of its top line. Those growth rates are explosive, but Nvidia's quarterly numbers reveal two near-term issues: Its year-over-year growth rates are slowing down, and its gross margin is slipping sequentially.

Data source: Nvidia. YOY = Year over year.

For the first quarter of fiscal 2026, Nvidia expects its revenue to rise 44% year over year as its adjusted gross margin dips to a midpoint of 71%. For the full year, analysts expect its revenue and adjusted EPS to grow 54% and 48%, respectively, as the AI market continues to expand and it ramps up its production of its newest Blackwell GPUs.

What are the bearish and bullish cases for Nvidia?

Nvidia is still growing like a weed, but the bears think its slowdown will worsen as the red-hot AI market finally cools off. Four challenges could throttle its near-term growth: the export curbs against China, higher tariffs that could drive it to manufacture its newest chips at lower margins in America, slower AI spending in a challenging macro environment, and competition from cheaper data center GPUs from Advanced Micro Devices (AMD 2.30%), Huawei, and other chipmakers.

In Nvidia's latest conference call in February, CEO Jensen Huang brushed aside those concerns and said it was "fairly safe to say that AI has gone mainstream and that it's being integrated into every application." Huang noted that while its revenue in China was roughly cut in half by the export curbs, the region's weight on its top line fell from 17% in fiscal 2024 to just 13% in fiscal 2025. Therefore, the strength of Nvidia's other markets should offset the pressure from its export curbs and tariffs in China.

Nvidia's growth is gradually slowing down, and its gross and operating margins could be compressed in this challenging and unpredictable macro environment. But at $103 a share, it still looks cheap at 23 times forward earnings. AMD, which is growing at a slower clip, has a forward price-to-earnings ratio of 19.

Is Nvidia an undervalued growth stock or a falling knife?

Nvidia controls about 98% of the data center GPU market, according to TechInsights, and it should remain well ahead of its smaller and less sophisticated competitors. It also locks a lot of AI developers into its proprietary Compute Unified Device Architecture platform for GPU applications, which can't be natively accessed by other data center GPUs.

So if you believe Nvidia will remain at the top of this booming market, then its stock still looks undervalued. It could remain volatile over the next few quarters, but investors who accumulate it through those swings could be well rewarded in the future.