You don’t have to be an investing genius to know that Nvidia (NASDAQ: NVDA) is a big winner from the artificial intelligence (AI) boom. The rising demand for graphics processing units (GPUs) — driven largely by AI — has made Nvidia one of the largest companies in the world.
Can Nvidia get any bigger? Yes, it can. The chip giant sees a $1 trillion opportunity — and it’s not AI.
An unstoppable $1 trillion transition
Nvidia CEO Jensen Huang said in August during his company’s second-quarter earnings call: “[T]The world is moving from general-purpose computing to accelerated computing. And the world is building about $1 trillion worth of data centers. $1 trillion worth of data centers in a few years will all be accelerated computing.” He added later in the conversation, “We’re at the beginning of our journey to modernize $1 trillion worth of data centers from general-purpose computing to accelerated computing.”
Is more demand for AI needed to facilitate this transition to accelerated computing? Huang doesn’t think so.
He spoke on September 11, 2024 at the Goldman Sachs Communacopia + Technology Conference. In his remarks, Huang imagined a scenario in which AI did not exist. He said, “Well, in the world where there is no AI at all, general-purpose computing is still exhausted.”
Huang argued that “Moore’s law is over” – a reference to the principle that Intel Co-founder Gordon Moore predicted that the speed of computers would double every two years. He claimed that the physical limitations of semiconductor manufacturing would get in the way.
The solution to the problem, Huang believes, is accelerated computing. And no company is better than Nvidia at designing the GPUs needed to make accelerated computing possible.
But don’t rule out AI yet
Of course, we don’t live in a hypothetical world where AI doesn’t exist. In the real world, AI is accelerating the shift to accelerated computing. Nvidia continues to add fuel to the fire.
The company’s new Blackwell GPU architecture enables the construction and execution of large language models (LLMs) with 1 trillion parameters at up to 25x lower cost and power consumption than the current gold-standard Hopper platform. Unsurprisingly, Huang said in Nvidia’s Q2 earnings call that “the demand for Blackwell has been incredible.”
But AI won’t just accelerate the transition from existing data centers using general-purpose computing to new data centers using accelerated computing; it will also likely continue to fuel the construction of more data centers. These new data centers will be what Nvidia calls “AI factories,” with data and electricity as the raw materials and AI as the product.
Expect Nvidia to continue to add fuel to the fire. The company is now in a “year-long rhythm” of introducing new GPU technology. As Huang said earlier this year, [A]After Blackwell…there will be more Blackwells.”
A no-brainer to buy?
Does Nvidia’s $1 trillion opportunity make the stock a no-brainer to buy? Maybe, but it’s no slam dunk.
First, it could take much longer than Huang anticipates for existing data centers to transition to accelerated computing. The growth in demand for AI could slow. Nvidia may not capture as much of the data center market as it hopes.
Investors should also recognize that significant growth prospects are already priced into Nvidia’s share price. The stock trades at 29.3 times trailing 12-month revenue and 40 times forward earnings.
But the overall premise of Huang’s case for Nvidia’s $1 trillion opportunity seems reasonable. Whether you think Nvidia stock is a no-brainer buy or not, it should still deliver exceptional returns for long-term investors.
Should You Invest $1,000 in Nvidia Now?
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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
This $1 Trillion Opportunity Could Make Nvidia Stock a No-Brainer Buy — and It’s Not Artificial Intelligence (AI) was originally published by The Motley Fool
