Even if you’re not a seasoned investor, you’ve likely heard about the remarkable surge in Nvidia’s stock (NASDAQ: NVDA), soaring by an impressive 235% since the beginning of this year. This surge is attributed to Nvidia’s outstanding financial performance, driven by the escalating demand for artificial intelligence (AI) applications.
Once primarily recognized for its contributions to the gaming industry, Nvidia has successfully pivoted to become a major player in the data center chips sector. This transformation is largely due to its powerful graphics processing units (GPUs), which are now in high demand as more companies venture into the AI landscape. Today, we will explore why Nvidia’s stock is considered a compelling investment.
Why Nvidia’s Stock Is a Great Buy
AI Market Boom
The AI market, valued at $137 billion in 2022, is projected to experience a robust compound annual growth rate of 37% until at least 2030, potentially surpassing $1 trillion by the decade’s end (source: Grand View Research). This rapid expansion sets the stage for Nvidia to remain a leading player in the AI chip market, enjoying sustained growth as new entrants join the industry.
Dominance in AI Chips
While formidable competitors such as Advanced Micro Devices and Intel are gearing up to challenge Nvidia’s AI chip dominance in 2024, the uphill battle they face is substantial. Currently boasting an estimated 90% market share in AI GPUs, Nvidia has established itself as the gold standard in AI hardware.
The company’s early entry into the AI arena has solidified its lead and provided the financial resources for continued research and development, maintaining its technological edge.
Impressive Financials
In the third quarter of the fiscal year 2023, Nvidia reported a staggering 206% year-over-year increase in revenue, reaching $18 billion, with operating income surging over 1,600% to $10 billion. A substantial portion of this success can be attributed to the remarkable 279% rise in data center revenue, amounting to $14 billion.
Nvidia’s robust free cash flow, which has more than tripled this year from $5 billion to over $17 billion, underscores the company’s financial strength. In comparison, competitors like AMD and Intel are grappling with declining cash flows.
Nvidia’s Future Growth Potential
While some may question Nvidia’s ability to sustain its current growth trajectory, projections suggest that ample room for stock appreciation remains. Even if the extraordinary 235% growth observed this year is not replicated in 2024, earnings estimates nearing $24 per share by fiscal 2026 signal continued growth.
When multiplied by Nvidia’s current forward price-to-earnings ratio of 45, this could result in a stock price of $1,080, indicating a potential 120% gain over the next two years.
Should You Invest in Nvidia?
Given these factors, considering an investment in Nvidia today could be a strategic move. New investors stand the chance to potentially double their investment over the next two years, making it an enticing opportunity not to be overlooked.
Nvidia’s stock emerges as an attractive investment option. Fueled by the booming AI market and fortified by its dominance in AI chips, coupled with robust financials, Nvidia appears poised for sustained success. For those contemplating investment opportunities, Nvidia could prove to be a lucrative choice in the years ahead.