Artificial intelligence is seen as a transformative technology, leading to an explosion of companies touting AI capabilities. Several AI-focused companies have also initiated IPOs in recent years, such as Sound dog in 2022.
Now there is a race for leadership in the AI space. For example, Microsoft CEO Satya Nadella stated that the technology conglomerate “will be a leader in the AI era, knowing that maximum business value is created during platform shifts.”
Amid this flood of AI-related companies, it’s hard to know which ones will be worthwhile stock investments in the long run. But one AI leader is a no-brainer buy. That company is that Nvidia (NASDAQ: NVDA). Here’s what makes the semiconductor giant a buy right now.
Nvidia’s Competitive Advantages
Over the past year, Nvidia has seen phenomenal revenue growth thanks to insatiable demand for its AI-focused semiconductor chips. In its fiscal first quarter, which ended April 28, for example, Nvidia posted record revenue of $26 billion, up 262% year over year.
Nvidia is well positioned to continue to benefit from this AI demand in the coming years. That’s because it’s at the intersection of AI technologies. The many companies providing AI solutions all need Nvidia’s semiconductor chips, or those of its competitors, to perform AI’s complex calculations.
What gives Nvidia’s products an edge over the competition is that the company realized years ago that its graphics processing units (GPUs), originally designed for video games, could be applied to artificial intelligence (AI) computer programs, called AI models. This gave Nvidia an edge over the competition.
The company has been continuously developing its chips to handle increasingly sophisticated AI models. For example, Nvidia’s GPU developments over the past decade have led to a 1000-fold improvement in an AI’s ability to make decisions and execute tasks correctly.
The company’s latest innovation, the Blackwell platform, was released in May. This new architecture is specifically designed for AI-based computing. According to Nvidia, Blackwell contains the world’s most powerful chip, with more than 200 billion transistors.
In addition, Nvidia created its own software platform called Compute Unified Architecture (CUDA). Customers can use CUDA’s digital tools to customize Nvidia GPUs to their needs. This software is ubiquitous in the technology industry and provides Nvidia with yet another competitive advantage.
These kinds of advances contribute to the company’s economic position and give Nvidia a substantial lead over competitors that may never be able to catch up.
Nvidia’s Leadership
Another factor that gives Nvidia an edge is the leadership of CEO Jensen Huang. He sees the rise of AI as a new industrial revolution. Like those of the 18th century, he sees today’s cloud computing data centers using AI production capabilities.
Mr. Huang described his vision as follows: “Enterprises and countries are working with Nvdia to shift the trillion-dollar traditional data centers to accelerated computing and build a new type of data center – AI factories – to deliver a new product to produce: artificial intelligence.”
Under Mr. Huang’s leadership, Nvidia transformed from GPUs for video games to the leader in semiconductor chips for AI. Now, Nvidia’s AI chips are used in industries such as healthcare, automotive, and government. CFO Colette Kress noted, “The importance of AI has captured the attention of every country.”
She expects government sales to grow from zero last year to the single-digit billion dollar range this year. As a result, Nvidia’s fiscal second-quarter outlook estimates revenue at $28 billion, more than double the previous year’s $13.5 billion.
Even more reasons to invest in Nvidia
Nvidia’s strong revenue numbers have translated into financial strength. The company’s net income for the first quarter was $14.9 billion, an impressive 628% increase year-over-year. This helped Nvidia achieve a staggering 629% improvement in diluted earnings per share (EPS) in the first quarter, from $0.82 a year ago to $5.98.
That’s not all. Nvidia has seen spectacular growth in free cash flow (FCF). In the first quarter, FCF was $14.9 billion, up from $2.6 billion a year ago. FCF provides insight into the cash available to invest in the business, pay down debt, buy back shares, and fund dividends. Thanks to FCF growth, Nvidia recently increased its dividend by 150%.
Nvidia’s combination of technological achievement, leadership and vision has led to outsized revenues and profits. These elements of success also help Nvidia stay ahead of competitors in the semiconductor industry.
The many factors that contribute to Nvidia’s performance are why it is my top AI stock. Considering the multi-year growth of the AI market, which is forecast to rise from $136 billion in 2023 to $827 billion in 2030, Nvidia is a great long-term investment.
The company’s shares have fallen from their 52-week high of $140.76, which it hit on June 20. Following the 10-for-1 stock split on June 7, Nvidia’s shares have become more affordable, making now a good time to buy.
Should You Invest $1,000 in Nvidia Now?
Before buying Nvidia stock, consider the following:
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Robert Izquierdo has positions in Microsoft and Nvidia. The Motley Fool holds positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
These Are My Best Artificial Intelligence (AI) Stocks to Buy Right Now originally published by The Motley Fool
