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Nvidia stock has reached stratospheric heights, and for good reason
Nvidia NASDAQ:(NVDA) stock was selling for $631 per share on January 30, an increase of $20 per share in just 24 hours.It was a mistake to sell myself Advanced Micro Devices (NASDAQ:AMD) Recently, we have been focusing on industry leaders.
This required an adjustment and raised the target sales price from $500 to an unknown amount. How high can you go? The answer lies in looking at two moats that exceed the strength of Cloud Czar. alphabet (NASDAQ:Google)(NASDAQ:google), Amazon (NASDAQ:AMZN) and microsoft (NASDAQ:MSFT).nThese moats are the broader cloud market and its CUDA software.
NVDA Stock and Cloud
My son is a biochemist who studies protein structures and uses internal clouds. To do so, he recently had to spend an entire weekend uploading the data.
Yes, it’s a small cloud. Most research institutions now have cloud deployments on campus. So do most large enterprises looking for valuable applications by training their internal databases with large-scale language models. You can also find clouds wherever they intersect. Equinix (NASDAQ:Ixx) data center.
Importantly, there is a vast cloud market beyond Cloud Czars. When most of us think of “the cloud,” we might think of the public cloud and its consumer market. But these thousands of private clouds hungry for Nvidia chips are the bigger, longer-term opportunity.
This “private cloud market” will be worth $12.8 trillion in 2022, growing more than 20% annually, and should be worth more than $28 trillion by 2028. These companies are not large enough to create their own hardware like Cloud Czars. They’re either accepting the cost of his Nvidia upgrade or looking for a cheaper alternative.
Add to this Nvidia’s own cloud services. Nvidia is bringing its most powerful chips to the party, the Grace Hopper series. We haven’t forgotten about the gamers who promoted graphical superiority a decade ago either.
In other words, NVIDIA has legs in the cloud market, which bodes well for NVDA stock.
Chasing Cuda
If Nvidia were just a chip company, it wouldn’t be as powerful as it is, but Nvidia is a software company first. The key to Nvidia’s market dominance remains its CUDA software, which is seen as an essential building block for AI applications.
CUDA is especially driving competitors crazy. intel (NASDAQ:INTC). CEO Pat Gelsinger told the world in December that “the entire industry is motivated to eliminate NVIDIA’s dominance of CUDA.” A month later, he was forced to admit in his latest earnings call that Intel was nowhere near that.
The profits themselves weren’t bad. However, data centers had notable weaknesses. Intel’s forward guidance was bad enough to cause the stock to drop more than 10% in less than an hour. That’s the power of CUDA.
A more open framework would benefit AMD, Intel, and Chinese chip makers. That would lower the cost of his AI for everyone.
But CUDA is a moving target and the market won’t wait for the laggards. It’s an old story where the leader gets his 90% of the profits, the second place company gets his 9%, and everyone else fights for the rest of the profits.
NVDA Stock Conclusion
AI and Nvidia are now rapidly penetrating the heart of the vast computer industry.
Before that’s done, every computer system you touch will be using AI, and most of them will be using Nvidia software.
But how high is too high? As of January 30, NVIDIA was valued at $1.54 trillion, with sales approaching $45 billion and net income expected to be around $19 billion. Everyone’s beloved Amazon is worth $1.66 trillion. The company’s revenue is 10 times that of his Nvidia’s, but net profit has increased by only 5%.
Nvidia is well regarded. Yes, it can go up even more and probably will go up in the next year or two. I can’t say when I’ll sell it because I don’t know myself. But we’re getting closer.
At the time of this writing, Dana Blankenhorn held long-term positions in AMZN, GOOGL, MSFT, INTC, and NVDA. The opinions expressed in this article are those of the writer and are influenced by InvestorPlace.com. Publishing guidelines.
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