Artificial intelligence (AI) has undeniably reshaped the market landscape, catalyzing a remarkable rally in 2023 that steered Wall Street clear of bear market terrain. The advent of generative AI, in particular, is touted to unlock a surge in productivity, with market speculations pegging its potential value starting at a trillion dollars.
This colossal opportunity has sent businesses and investors scrambling to secure their slice of the pie. However, amidst the fervent rush, dissenting voices have labeled the trend as a bubble or mere hype.
Nonetheless, Arm Holdings CEO Rene Haas stands unwavering in his conviction. In an interview with Bloomberg Technology, Haas boldly asserted, “AI is not in any way, shape, or form a hype cycle. We believe that AI is the most profound opportunity in our lifetimes, and we’re only at the beginning.”
Should Haas’s conviction hold true, one AI stock worthy of fervent acquisition is Nvidia.
Image source: Getty Images.
Setting the Pace: The Journey of Nvidia
Nvidia’s ascendancy as a dominant force in technology traces back to its pioneering of the modern graphics processing unit (GPU)–the very engine propelling lifelike images in video games.
Employing parallel processing – a methodology that efficiently dissects complex mathematical tasks and processes them concurrently – Nvidia swiftly recognized the broad applicability of this technology, applying it to AI, cloud computing, data centers, and autonomous driving systems.
Boasting an early lead in machine learning, Nvidia commands an estimated 95% share of the market, staking a solid footing when generative AI emerged. The resultant demand for AI stems largely from cloud infrastructure providers, which include Nvidia processors in their operations – from Amazon Web Services to Tencent Cloud. With an estimated 95% stake in the data center market, Nvidia’s potential in this domain is still largely untapped.
On the Cutting Edge: Nvidia’s Swift Advancements
Nvidia’s relentless pace of innovation puts its competitors at a marked disadvantage. Anticipating any comparable processor breakthroughs, Nvidia swiftly rolls out the next generation of its high-speed chips, bolstered by a burgeoning research and development budget.
In fiscal 2023, Nvidia allocated a striking 27% of its total revenue – a staggering $7.34 billion – to research and development, forging an unassailable lead. This hefty investment swiftly bore fruit, as evidenced by Nvidia’s fiscal 2024 third-quarter results, delivering record revenue of $18.1 billion, a 206% year-over-year increase.
While skeptics may balk at Nvidia’s seemingly lofty valuation, denouncing it as exorbitant, a more discerning view considers the company’s triple-digit growth and pegs its valuation at less than 1 when evaluated using the price/earnings-to-growth (PEG) ratio– a hallmark of an undervalued stock.
Hinging on its industry-leading position, track record of growth, and modest valuation, Nvidia remains a prime option to continually accumulate, especially if AI indeed materializes as “the most profound opportunity of our lifetimes.”
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