Nvidia (NVDA) is one of the top-performing stocks in the S&P 500 index this year, on track for an increase of nearly 180%. The stock recently reached an all-time high. This success can be attributed to Nvidia’s strong presence in the rapidly expanding artificial intelligence (AI) chip market. The company’s graphics processing units (GPUs) are known for their speed, attracting many customers for both its chips and a range of AI products and services.
This has resulted in significant earnings growth for Nvidia, with the company consistently reporting triple-digit revenue and profit increases each quarter. This trend appears likely to continue, given an upcoming product launch and high demand for Nvidia’s current offerings.
Nvidia’s status as a leading tool for AI stems from its initial focus on the video game market and subsequent expansion into other industries. The growth in AI has further boosted earnings as Nvidia’s GPUs have become indispensable for model training and inferencing tasks.
Recently, Nvidia’s quarterly revenue surpassed its entire annual revenue for fiscal 2023, recording a landmark $30 billion, with 87% of it stemming from its data center operations, which include AI activities.
Looking to the future, Nvidia anticipates further growth owing to an upcoming launch and the company’s commitment to innovation. The development of a new architecture called Blackwell, coupled with the company’s highest-performance chip to date and five other significant innovations, positions Nvidia well. Production is set to ramp up in the fourth quarter, with “several billion dollars” expected in new revenue.
The demand for Blackwell has already exceeded supply despite continuous efforts to meet it, and this trend is expected to persist into the following year. Additionally, there remains strong demand for the previous architecture, Hopper, which should sustain robust revenue growth in upcoming quarters.
Beyond the Blackwell launch, Nvidia’s strategy involves annual updates to its chips. This approach is likely to maintain the company’s competitiveness, bolstering its strengths and maintaining an edge over rivals.
However, competition could emerge from new players offering alternative AI solutions. For example, Cerebras Systems, which plans to go public, has introduced technology that might compete with Nvidia’s GPUs. Despite this, Nvidia’s long-standing customer trust and proven high-performance products may present significant challenges for newer competitors.
Considering these factors, potential investors face a decision regarding whether to purchase Nvidia stock at its peak or to proceed cautiously. The stock may appear high-priced, but it remains reasonably valued given Nvidia’s history and long-term potential, trading at 48 times forward earnings estimates.
Viewing this investment over a long-term horizon suggests that the stock could increase further due to product demand, innovation, and growth in the AI sector. It seems Nvidia has not yet fully realized its potential, offering optimism for continued success and reason to consider a long-term investment in this leading AI company.
