If there was any doubt about the strength of the AI boom in the stock market and in the broader economy, Nvidia (NASDAQ: NVDA) leave those questions alone.
For the first quarter of 2024, the AI chip titan just released another blockbuster earnings report, with year-over-year revenue growth of 262% overall and 427% in the data center segment, where the AI revolution is happening.
These numbers weren’t a huge surprise to those following the stock, but they were still better than expected, as were the company’s expectations for the second quarter. It was enough to add about $200 billion to Nvidia’s market cap.
However, what really fueled the excitement about the artificial intelligence revolution was comments from Nvidia CEO Jensen Huang, which showed that growth in the AI market was still in its early stages and demand was still soaring and exceeded the offer.
For example, Nvidia noted that 40% of data center revenue was the result of AI inference, meaning that training, the other key component of creating generative AI models, likely made up the largest portion of data center revenue in the quarter. The company said both training and inference grew “significantly.”
That’s important because inference is expected to ultimately account for a much larger share of data center demand than training, as inference is the component that comes after training. If the demand for AI inference is still lower than the demand for AI training today, it means that the companies and organizations using generative AI are still in the very early stages of scaling the demand for generative AI.
The AI power struggle
Running generative AI models consumes enormous amounts of energy, and this problem has been largely overlooked in the generative AI boom thus far. Predictions for generative AI power consumption vary, but some say it will impact the electric grid in ways not seen since the spread of central air conditioning in the 1960s. According to Goldman SachsThe demand for power in data centers is expected to grow by 160% by 2030.
If these estimates are correct, the real winners of the AI-driven energy crisis will likely be the energy suppliers themselves, i.e. utilities such as Dominion Energy (NYSE:D).
Nearly all of Dominion Energy’s profits come from Virginia, where it enjoys a regulated utility monopoly. The company’s annual report states that it faces no competition in electricity distribution services and that “such competition is not currently permitted.”
That’s significant because Virginia is a major market for data centers. In fact, Northern Virginia is the largest data center market in the world, and the state has approximately 35% of the world’s hyperscale data centers. These are the data centers that belong to some of Nvidia’s largest cloud computing customers Microsoft Azure, Amazon Web services, and Alphabet‘s Google Cloud Services.
As these companies ramp up their AI data center activities, Dominion appears poised to benefit. During a recent earnings call, management noted, “Northern Virginia leads the world in the data center markets. In recent years, this growth has accelerated orders of magnitude.”
Why now is a good time to buy
Investors primarily own utility stocks for their dividends, as these recession-proof companies tend to be reliable income stocks.
However, most utility stocks have fallen in recent years; Rising interest rates have led to dividend investors parking their money in bonds, as government bonds now pay more than 5%. You can see that weakness reflected in Dominion’s performance over the past three years.
The stock is down 33% over the past three years, as has the S&P500 index has risen to new all-time highs.
Dominion currently offers a 5% dividend yield, making it attractive as an income stock. Investors who buy the stock now can benefit from the share price recovery as interest rates are expected to fall later this year, and they should also benefit from longer-term data center demand growth in Dominion’s home market of Virginia.
Buying Dominion stock now could be an excellent way to capitalize on the boom in generative AI.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions at Amazon. The Motley Fool holds positions in and recommends Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool recommends Dominion Energy and recommends the following options: long calls in January 2026 for $395 at Microsoft and short calls in January 2026 for $405 at Microsoft. The Motley Fool has a disclosure policy.
Listen to Nvidia. This Little-Known, Undervalued Company Could Now Be a Top Stock Pick in Artificial Intelligence (AI) Originally published by The Motley Fool
