Artificial intelligence (AI) went viral early last year and shows no signs of letting up. Nvidia (NVDA -0.79%) supplies the graphics processing units (GPUs) that underpin the technology, and demand continues unabated. That said, some investors still worry that looming competition, demand in China, or uneven adoption could derail the stock's meteoric rise.

However, given its expanding opportunity, one Wall Street analyst thinks investors continue to underestimate Nvidia's growing AI potential.

Rack 'em up

HSBC analyst Frank Lee reiterated his buy rating on the stock and raised his price target to $1,350. That represents potential gains for investors of 49% over the coming year compared to the stock's closing price on Monday. The analyst suggests that Nvidia's sales and profits will be more robust than investors expect.

When the company reports the results for its fiscal 2025 first quarter next week, Nvidia's revenue will top $26 billion, outpacing analysts' consensus estimates of $24.45 billion, according to Lee. Furthermore, for the full year, he believes the company's profits will outpace Wall Street's already elevated expectations by 45%.

There's reason to believe the analyst has hit the nail on the head. Investors have continually underestimated the accelerating adoption of AI and its impact on Nvidia's results. The recently released Grace Blackwell GB200 Superchip and NVL36/NVL72 liquid-cooled, rack-scale servers, combined with Nvidia's unmatched pricing power, could result in additional upside potential for its revenue and profits over the coming year.

Furthermore, while some companies are constrained by the number of Nvidia processors they can lay their hands on, Nvidia is under no such constraint, as it has first dibs on its chips, which gives the company a distinct advantage in the market. This led Lee to conclude the company would sell 35,000 rack systems priced between $1.8 million and $3 million each. This could boost its fiscal 2026 revenue to $196 billion.

Nvidia stock is currently trading at 36 times forward earnings. While that's a premium, it's supported by the company's triple-digit revenue growth, which makes Nvidia stock a buy.