Nvidia (NASDAQ:NVDA) stock is among the year’s strongest performers. The stock is up almost 132% during the last six months, an astounding return by all measures.
The momentum in the artificial intelligence (AI) industry shows no signs of decelerating as the race to develop advanced technologies intensifies. As Nvidia works with most companies active in the space, it can gain handsomely from the situation.
Although known for producing graphics chips for gaming applications and data centers, Nvidia is gaining recognition as the leader in AI. The company has always been at the forefront of AI technology, with a long-standing reputation as a pioneer.
As an illustration of its leadership, in 2016, Nvidia provided OpenAI, the developer of the ChatGPT online chatbot, with one of the world’s first AI supercomputers. Today, OpenAI still trains its large language models using thousands of Nvidia’s advanced graphics chips. This partnership underscores the company’s commitment to innovation and the development of advanced computing hardware.
Furthermore, Nvidia’s chips are in use the world over to power AI applications. The company is leading the way in developing hardware and software to support AI technologies. Its advanced graphics processing units (GPUs) are highly efficient. And can perform multiple parallel computations, making them ideal for training and running AI models.
No wonder Louis Navellier and his ace investing team recently named NVDA a top stock.
However, there is one thing going against Nvidia: valuation. At a time when there are still recession concerns, the chipmaker is changing hands for 155 times price-to-earnings. Value-oriented investors will want to wait for a more attractive entry point to purchase this stock.
NVDA Stock Is on the Way to a Trillion-Dollar Market Cap
Cathie Wood’s Ark Investment Management believes that generative AI models could generate $14 trillion in revenue by 2030, and Nvidia is one of the only suppliers of the necessary AI tools.
Nvidia CEO Jensen Huang claims that software can extract 1,000 times more performance from existing hardware, making AI essential to computing hardware. Nvidia’s end-to-end computing services, such as the Drive platform for autonomous self-driving vehicles, could be worth $2.1 trillion by 2030.
AI platforms require significant computational power, and ChatGPT alone utilizes 10,000 of Nvidia’s A100 GPU chips for training its model. Each unit of these GPUs can retail for around $10,000, making it a massive revenue opportunity for Nvidia as ChatGPT.
Moreover, Nvidia has declared that the most recent MLPerf outcomes demonstrate that NVIDIA H100 GPUs used in DGX H100 systems provided the top performance in every test of AI performance. This is a significant accomplishment for Nvidia, as it highlights the capabilities and potential of its hardware in driving advancements in AI technologies. These results further solidify Nvidia’s position as a leading provider of GPUs for AI applications.
As such, Nvidia’s growth prospects in the AI industry remain promising, making it an attractive investment option for the long term.
Furthermore, there is a high probability that Nvidia could join the exclusive group of companies with a market capitalization of $1 trillion. Given the substantial growth catalysts at its disposal, it’s only a matter of time before the company achieves this milestone.
More Than Just a Chip Company
Nvidia is making its DGX supercomputer accessible to all businesses to develop AI solutions that meet their specific needs by providing it online through cloud providers such as Azure. This move is significant, enabling businesses of all sizes to harness the power of Nvidia’s advanced computing hardware.
By democratizing access to high-performance computing, Nvidia empowers more businesses to leverage this technology. At the same time, this helps in enhancing the growth of AI. This strategic move further cements Nvidia’s leading advanced computing hardware and software provider position. It also places it in a unique category among semiconductor stocks.
Nvidia’s recent developments signify its evolution from a semiconductor producer to an end-to-end platform computing company. By building its software capabilities, Nvidia can provide comprehensive solutions to its clients. It will help boost the bottom line and improve margins simultaneously.
A prime example is Nvidia’s Drive platform. It offers car manufacturers the hardware and software required to implement fully autonomous self-driving features. This capability demonstrates Nvidia’s ability to provide end-to-end solutions that can revolutionize entire industries. As a result, the company’s potential for growth and profitability is significant, making it an attractive investment option.
NVIDIA has projected a market size of $150 billion for AI and high-performance computing, $150 billion for “Digital Twins” (such as Omniverse), and $100 billion for cloud-based gaming by 2030. These estimates are worth noting for investors.
By the way, for a more focused take on the digital twins market, here is a great piece from Joel Baglole, which delves into the prospects for Nvidia and others involved in the space.
Premium Valuation
Over the past decade, Nvidia’s price-to-earnings (P/E) ratio has ranged from a minimum of 13.31x to a maximum of 159.64x, with a median of 38.02x. Currently, the P/E ratio is 155.39x, notably higher than the industry median of 21.54x.
Warren Buffett famously stated in a letter to his shareholders, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Nvidia’s strong growth prospects and leadership position in the AI industry make it an attractive investment option. However, the high valuation may deter some investors, particularly amid the ongoing economic uncertainty and concerns about a potential recession.
Considering a company’s valuation carefully before investing is important, especially during market volatility. While Nvidia’s long-term potential is significant, it is crucial to weigh the risks and benefits of investing in the company at its current valuation.
Can NVDA Stock Reach $1000?
The surge in AI technologies this year has significantly benefitted NVDA stock, positioning it as one of the major beneficiaries of the industry’s growth. AI is predicted to experience robust growth in the coming decade. The market, valued at almost $100 billion, is projected to expand by twenty times to almost $2 trillion by 2030. As a result, NVDA has a good chance of getting to $1000 by the middle of this decade.
As a result of its strong growth potential and solid execution, NVDA stock is a buy in my eyes.
On the publication date, Faizan Farooque did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.