The boom in artificial intelligence (AI) is in full swing and perhaps no company has benefited more from it than Nvidia (NASDAQ: NVDA)For years, the company’s semiconductors have been a top choice among leading tech companies for AI processing, and now that’s paying off for Nvidia stock.
The company’s stock price has more than doubled over the past year, leaving many investors wondering: Where does Nvidia go next? Here are some thoughts on the company’s AI leadership position and what that could mean for the year ahead.
Maintaining AI Dominance
To understand where Nvidia will be a year from now, you need to understand where it is now: at the top of the AI hill. Nvidia has an estimated 70% to 95% of the AI chip market and is constantly innovating to maintain its lead.
The company recently released its H200 AI processor, the successor to the wildly popular H100, and according to CEO Jensen Huang, demand is already outstripping supply.
How does this AI dominance translate into a real advantage for Nvidia? The company’s data center revenue, including sales of AI chips, soared 427% compared to the same quarter a year ago (ended April 28) and amounted to $22.6 billion.
And what about the competition from Nvidia? They do have some worthy rivals. Advanced micro devices is the main competitor and should not be ignored. But even the magnitude of AMD’s AI growth is minuscule compared to Nvidia.
AMD’s second quarter (ended June 29) datacenter sales rose 115% to just $2.8 billion. While impressive, it’s a fraction of Nvidia’s datacenter revenue and far below its revenue growth.
More AI investments
Some of the world’s largest tech companies made headlines recently when they reported quarterly results. Investors were interested in their revenue and profits, but their billions of dollars in AI spending attracted a lot of attention.
For example, two tech CEOs recently defended the significant spending spree:
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“I think all companies that invest are making rational decisions. The downside of being behind is that you’re not positioned for the most important technology for the next 10 to 15 years.” Meta CEO Mark Zuckerberg recently said this in a podcast.
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“If we go through a curve like that, the risk of underinvestment is much greater than the risk of overinvestment for us here,” Alphabet CEO Sundar Pichai said this during his company’s latest earnings report.
According to Goldman Sachsother tech companies are also spending huge amounts to compete in AI, and their combined spending will total 1 trillion dollars in the coming years.
There’s no guarantee that Nvidia will reap the benefits of these investments, or that companies will continue to invest as heavily as they have over the past year. But tech companies are currently engaged in an AI land grab. Nvidia’s AI chips are the best, and spending is accelerating. That puts the company in a great position for the year ahead.
A potential buying opportunity
Let me state the obvious first: Nvidia is expensive. The company’s stock has a price-to-earnings (P/E) ratio of 40.9. That’s not cheap by any means, but it is cheaper than the stock was this time last year, when it had a P/E ratio of around 63.
A recent stock market pullback — driven by a handful of factors, including concerns about U.S. job growth — has sent Nvidia’s share price down about 20% over the past month. This recent decline could provide an opening for investors bullish on AI.
Nvidia stock won’t see the massive gains it has seen over the past year. However, given its leading position in AI, coupled with the fact that big tech companies are ramping up their spending on AI infrastructure, Nvidia has the potential to outperform the market for the next year or more.
Should You Invest $1,000 in Nvidia Now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Goldman Sachs Group, Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
Where Will Nvidia Stock Be in 1 Year? was originally published by The Motley Fool
