Shares of semiconductor giant Nvidia (NASDAQ: NVDA) have risen almost 217% in the past year. Undoubtedly, the rapid advancement and adoption of generative artificial intelligence (AI) applications and large language models are the main drivers of demand for its AI-enabled chips and systems. The graphics processing unit (GPU) leader has proven to be both a catalyst and a major beneficiary of the ongoing generative AI revolution.
Nvidia posted strong performance in the first quarter of fiscal 2025, which ended April 28, with revenue and profit rising 262% and 690%, respectively, year over year. For the fiscal year ending January 31, analysts expect revenue to grow 97% to $120 billion and earnings per share (EPS) to rise 109% to $2.71.
In addition to these exceptional short-term prospects, there are also at least three important reasons to expect Nvidia to grow significantly in the long term.
A dominant player in the field of accelerated computing
Revenue from Nvidia’s data center business rose a stunning 427% year over year to $22.6 billion in the first fiscal quarter. That segment accounted for 87% of revenue and will play a crucial role in the company’s future growth story.
Hyperscalers (major cloud infrastructure providers), enterprises across industries, and governments around the world are upgrading trillions of dollars of installed data center infrastructure built around dumb NIC (network interface cards) and CPUs by installing accelerated computing hardware. This infrastructure has become critical in training and inferring large language models and other generative AI applications. Nvidia also expects that companies will upgrade existing accelerated computing infrastructure from that based on the current Hopper architecture H100 chips to the next generation Hopper architecture H200 chips and the next generation Blackwell architecture chips.
The economic conditions are very attractive for customers, especially for cloud service providers. During the most recent earnings call, an Nvidia executive claimed that “for every $1 spent on NVIDIA AI infrastructure, cloud providers have the opportunity to earn $5 in GPU instant hosting revenue over four years.”
Demand for Nvidia’s AI GPUs far exceeds supply, even as the company focuses on expanding production capacity for chips like H100 and Grace Hopper. It expects supply of next-generation H200 and Blackwell chips to lag demand until next year. This will ensure that Nvidia continues to enjoy pricing power despite increasing competition in this niche of the chip industry.
In addition to the AI GPUs, Nvidia has also introduced the Grace Hopper Superchip (CPU + GPU), Blackwell architecture chips, AI-optimized Spectrum-X Ethernet networks, and Nvidia AI enterprise software. These products deliver performance improvements and lower costs for users while training and running AI applications.
According to Jensen Huang, CEO of Nvidia, AI enables the $3 trillion information technology industry to build tools that can target nearly $100 trillion of the industry. Against this backdrop of solid growth, commitment to innovation and rapidly expanding market opportunities, the company’s price-to-earnings (P/E) ratio of 33.93 seems justified, even if it is not cheap.
Full-stack AI platform
Nvidia has evolved from a chip supplier to a ‘full stack’ AI platform provider. The company supplies a complete software stack (CUDA, AI enterprise software, inference microservices, Omniverse), fast network components (InfiniBand, Ethernet) and servers for hardware such as GPUs, DPUs (data processing units) and CPUs. AI factories” that generate multimodal output (AI tokens) including text, images, audio, and video. AI factories refer to the essential infrastructure built by customers for AI production. In the first fiscal quarter, Nvidia worked with more than 100 customers building AI factories ranging in size from hundreds of GPUs to 100,000 GPUs.
Nvidia’s GPUs and the supporting Compute Unified Device Architecture (CUDA) software stack – an AI-optimized parallel programming platform for the company’s hardware portfolio – have been crucial in multiple AI breakthroughs, including transformer models, unsupervised learning, and foundational models such as GPT-4 and Metaplatforms‘ Llama. In its efforts to stay ahead of the competition, the company has accelerated the release frequency of its products and key features from once every two years to once per year. Nvidia has also built a large ecosystem of partners, including technology titans, AI startups, and every major cloud service provider.
All these factors have allowed Nvidia to build a solid competitive position in the fast-growing AI space.
Expanding the addressable market
Nvidia is also leveraging its AI platform to expand its addressable market in areas such as “sovereign AI,” automotive, and physical AI.
Nvidia sees sovereign AI as a major growth opportunity as countries around the world build out their domestic AI capabilities. The company works with governments and local players to provide end-to-end AI infrastructure. Management expects sovereign AI’s contribution to Nvidia’s revenues to grow from nothing in fiscal 2024 to numbers in the billions in the high single digits in fiscal 2025.
Nvidia’s Drive platform, which integrates hardware and software solutions to provide computing power, AI technologies and software frameworks for autonomous vehicles and advanced driver assistance systems, is also seeing robust demand.
Nvidia also expects physical AI (i.e. AI-enabled robots) to be a key long-term growth driver. The company creates end-to-end robotics platforms for factories and warehouses, as well as humanoid robots.
Although Nvidia’s share price is near its all-time high, the growth drivers discussed above should provide enough of a case to convince investors to buy shares of this blockbuster stock now.
Should You Invest $1,000 in Nvidia Now?
Before you buy shares in Nvidia, consider the following:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $808,105!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns June 10, 2024
Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
3 Reasons to Buy Nvidia Like There’s No Tomorrow (Hint: The Stock Split Isn’t One of Them) was originally published by The Motley Fool
