a Backlog Investors Can Track for Future Revenue
Investors have long been bullish on Nvidia (NASDAQ: NVDA) for many reasons, but one that may not get a lot of direct attention is its backlog. Amid the massive demand for its AI accelerators, it accumulated a backlog of $500 billion in combined bookings for 2025 and 2026. Also, when CEO Jensen Huang was in Seoul in June, he stated that we are at the beginning of the AI boom, even as Nvidia stock has made massive gains over the last four years.
However, semiconductor stocks, including the chip giant, have pulled back in recent trading sessions as concerns about high capital expenditures (capex) and circular financing have given investors pause. Despite those concerns, investors should consider using this pullback to add shares. Here’s why.
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The state of Nvidia
Admittedly, the uncertainty surrounding Nvidia is understandable. The estimated $725 billion in planned capex by hyperscalers could raise doubts about access to credit. Moreover, Nvidia is an investor in many of its customers, leading to questions about whether the $500 billion is a true reflection of the backlog.
Nonetheless, other factors cast doubt as to whether Nvidia is really in trouble. Huang added that investors should be “very happy” since they can “buy at a discount.” He appears to have a point. Its stock sells at a P/E ratio of 30, barely above the S&P 500 average of 29.
Despite that valuation and Huang’s assertion about the AI boom, Nvidia is not trading at a premium. In the first quarter of fiscal 2027 (ended April 26), its revenue of $81.6 billion rose by 85% from year-ago levels. That led to $58.3 billion in net income, a 211% annual increase. Also, since revenue surged 65% higher in fiscal 2026, its quarterly growth is more than a one-time event.
Considering Nvidia’s growth rate, it likely does not need to artificially inflate its growth. Additionally, the “circular financing” is a reflection of its AI needs.
For example, it is an investor in the neocloud company CoreWeave, which is also a customer. In a technical sense, Nvidia does not “need” CoreWeave to grow.
Still, CoreWeave gives Nvidia a platform where it can more quickly deploy and test its hardware. Also, since the neocloud industry is new, the leading companies do not have the backing to scale quickly on their own.
With Nvidia’s support, they can build faster, facilitating faster adoption of its technology. This means that such investments could pay off for Nvidia longer-term and, ultimately, ease the concerns of investors.
Moving forward with Nvidia
Despite doubts, Nvidia’s backlog is a reason to buy its stock.
Indeed, concerns about credit accessibility could slow growth and discourage some investors from buying its stock. Also, its so-called “circular financing” makes it look like Nvidia has to buy its growth.
However, the stock’s P/E ratio seems to confirm that it sells at a discount. Also, it appears investments like its position in CoreWeave contribute to the improvement and rapid deployment of its hardware.
Thus, despite the concerns, investors should continue to believe in Nvidia’s growth. Considering its comparatively low P/E ratio, investors have good reason to look past the uncertainty and take a position in the chip stock.
https://finance.yahoo.com/technology/ai/articles/nvidia-500-billion-ai-chip-111000728.html
