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There’s no getting around the impact artificial intelligence (AI) has had on market trajectories over the past year or so. Some would argue that the latest advances in AI helped spark the stock rally in 2023, saving Wall Street from the bear market slump.
Generative AI promises to spark a wave of productivity improvements, and stock market experts are still debating how much it will ultimately be worth. Most estimates start in his $1 trillion range and go up from there.
With such a huge opportunity, companies and investors alike are scrambling to get a piece of the pie. Unfortunately, some are decrying this mad dash as a bubble or hype.
say it’s not so arm holdings CEO René Haas. In an interview with Bloomberg Technology, the CEO said, “AI will never create or create a hype cycle. We believe AI is the most profound opportunity of our lifetime.” “We are only at the beginning.” ”
It’s a bold declaration, but one that echoes throughout the halls of the world’s largest technology companies. If Haas is right, and I believe he is, there is one AI stock that I will continue to buy on a whim. Nvidia (NVDA 3.58%).
Image source: Getty Images.
Jack please be agile…
It’s worth stopping for a moment and looking at how Nvidia came to be one of the dominant forces in the technology world today. The company pioneered the latest in graphics processing units (GPUs) to render lifelike images in video games.
The technology that made it all possible is parallel processing. Parallel processing allows complex mathematical processing jobs to be processed by breaking them into manageable bits and running them simultaneously. Nvidia quickly realized that this technology had much broader applications and focused on applying it to early versions of AI, cloud computing, data centers, self-driving technology, and more.
The company gained an early lead in machine learning, an early field of AI, with about 95% of the market, according to New Street Research. So when generative AI was called, Nvidia was ready.
Much of the current demand for AI comes from cloud infrastructure providers who make generative AI available to their customers. A look at Nvidia’s list of cloud computing customers gives you an idea of who the company is when it comes to technology. Amazon web services, microsoft Azul, alphabetGoogle Cloud, and IBM All clouds employ Nvidia processors for cloud operations. oracle cloud, Baidu AI cloud, alibaba cloud and tencent cloud.
NVIDIA is the gold standard for data acceleration over ether, controlling an estimated 95% of the GPUs used in the data center market, according to CFRA analyst Angelo Zino. But that opportunity is largely untapped. Rosenblatt analyst Hans Mosesmann argues that AI has triggered an upgrade cycle in the data center industry to address the computational demands of generative AI. With an installed base worth approximately $1 trillion, the runway ahead is long.
Hurry up Jack…
Nvidia’s speed of innovation makes it difficult for rivals to gain an advantage. The company will be ready to introduce the next generation of ultra-fast chips as soon as competitors come out with processors even closer to his Nvidia capabilities. reason? Nvidia has an ever-growing research and development (R&D) budget that could run a small country.
For example, in Nvidia’s fiscal year 2023 (ending January 29, 2023), the company spent 27% of its total revenue (totaling $7.34 billion) on research and development to create the next generation of cutting-edge technology. . Nvidia has already spent $6.2 billion through the first three quarters of its 2024 fiscal year, and that number will no doubt be even higher when Nvidia releases its full-year report later this month. .
This significant spending has kept the GPU pioneer ahead of AI, as evidenced by its recent achievements. In the third quarter of fiscal 2024 (ending October 29), Nvidia posted record revenue of $18.1 billion, up 206% year over year. As a result, diluted earnings per share were $3.71, an increase of 1,274%. Even though it could have easily profited from last year’s market downturn, the results were still noteworthy.
Some investors have cited NVIDIA’s high valuation as a reason to avoid the stock, which is understandable but short-sighted in my opinion. The stock sells for a P/E ratio of 92 times and sales of 39 times. Apparently That’s crazy at first glance, but it doesn’t take into account the company’s triple-digit growth that management expects to continue. However, using a more appropriate price-to-earnings (PEG) ratio reveals a valuation of less than 1, which is the standard for an undervalued stock.
Given the company’s industry-leading position, track record of growth, and surprisingly modest valuation, if AI is indeed the “biggest opportunity of our lifetime,” NVIDIA is a stock I plan to continue buying. It is one of the brands of
Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Danny Vena has worked at Alphabet, Amazon, Baidu, Microsoft, Nvidia, and Tencent. The Motley Fool has positions in and recommends Alphabet, Amazon, Baidu, Microsoft, Nvidia, Oracle, and Tencent. The Motley Fool recommends Alibaba Group and International Business Machines. The Motley Fool has a disclosure policy.
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