SpaceX and Elon Musk Deliver Fantastic News for Nvidia Stock Investors | NVDA Stock Analysis

SpaceX and Elon Musk delivered fantastic news for Nvidia stock investors as the company said they will be borrowing $40 billion to purchase Nvidia GPUs. Now, I wanted to share with you the details of this announcement and discuss Nvidia and look at its valuation and reiterate and share with you my estimates for what I think is a fair value for Nvidia stock and if I think it's a buying opportunity right now. I want to thank The Motley Fool for sponsoring this video. Visit fool.com/parKev for the 10 best stocks to buy now. SpaceX CEO said his company closed on $40 billion in financing to pay for specialized chips for its AI segment, but also warned that access to debt is drying up for companies that solely rely on data center revenue. Musk went on to say that SpaceX closed $40 billion in debt for Nvidia GPUs specifically used for AI, but highlighted that the space company is investment-grade and has Starlink and rocket launch revenue. In a move that I thought was one of the most prudent moves, SpaceX has diverted its internal use of computing and instead is renting out that computing power that it's built over time. SpaceX, I think, realized that it was far behind the leaders in artificial intelligence, large language models, agentic AI, etc. and it didn't make sense to spend more billions of dollars trying to chase that instead of saying, "Hey, wait a minute. What if we rent the computing power to these companies that are willing to pay premium prices above what we paid to build this technology? And then, later on, we can assess the situation and make a decision if we want to further advance our own large language model or if we want to just continue renting out this computing capacity to the companies that are further ahead like Anthropic and OpenAI. Now, this is an interesting tightrope that SpaceX has to walk. Remember, it licenses this technology to Tesla which uses the Grok AI in some of their vehicles. And so, they do need this technology at least to a certain extent. However, they don't need to be on the cutting edge. They don't need to be on the leading edge of the technology and so they can substantially reduce their investment in their own internal AI development, rent out a lot of that capacity. And it seems like that's more likely to be the case given how Elon is taking a shot at some of the neo clouds which are competitors if you're going this route of renting out computing to some of these large hyperscalers as a company that's providing that, you'd like to get some of these smaller companies out of the way, right? You'd like to get Coreweave and Nebius and Iran and all of these other companies out of the way so that you can be one of the fewer providers of this technology to the hyperscalers, to Anthropic OpenAI if they indeed continue to want to spend the money to purchase this technology. Nvidia is trading at a forward price to earnings of just 13.6 right now, which is near the cheapest it's traded for according to this metric going back several years. Investors are concerned that Nvidia doesn't have very much upside from here. The estimates already suggest massive free cash flow over these next several years, and its market capitalization is already above 5 trillion. To be more precise, its market capitalization is over 5.2 trillion. And speaking of cash flows, I'm estimating Nvidia will generate over $190 billion in free cash flow in its current fiscal year, which will end in January of 2027. Furthermore, I'm forecasting that free cash flow will grow to 475 billion by 2030. 475 billion. Absolutely incredible. But if we are to believe the estimates about the number on spending in data centers, this this is a reasonable estimate. For instance, in the current calendar year, which will end 2026, just five companies alone are estimated to spend over $900 billion in building data centers. That figure is estimated to rise to over 1.4 trillion next year in 2027. And given Nvidia's market share in this category, its dominant position in GPUs, which is still the most important component that's going into these data centers, despite the increasing importance of CPUs and memory, the GPU is still the primary component. Then it's reasonable to assume that Nvidia can capture a large share of that overall spending. And just to zoom out a little bit, when we talk about spending 1.4 trillion dollars in building data centers, 2/3 of that cost is in the components, the networking that's going into those data centers. 1/3 of it is the shell, the actual building. 2/3 is the value of the components that are going into those buildings, and a large percentage of that 2/3 is Nvidia components. Remember, Nvidia doesn't just have a CPU, it has the full stack offering. Vendors can choose I mean, companies can choose to go with different vendors and pick and choose what they want. For instance, they can buy the GPU from Nvidia, the CPU from AMD, the networking equipment from Broadcom, the connectivity equipment from Marvell, and on and on they can go and piece together the data center with various vendors. Or they can just go with Nvidia for the full stack, everything that they need to get a data center up and running. And some companies are choosing to go with Nvidia's full stack, while others are choosing to piece together the data center. Regardless, Nvidia GPU is the primary component in a lot of these data centers. It's estimated market share of GPUs in data centers is between 70 and 90% depending on the source you look for those estimates. So, it's no surprise to see I've got Nvidia ranked as the top stock you can buy right now with a high conviction level on that ranking. I own Nvidia stock in my portfolio. It's one of my largest positions and I'm interested in adding more. So, this was more fantastic news for Nvidia stock investors coming from Elon Musk and SpaceX. But of course, every stock has risk. No stock is without risk. But I feel the risk versus reward is very attractive for investors in Nvidia stock right now.