Nvidia’s shares have skyrocketed, but they could have farther to go.
Artificial intelligence (AI) stocks have been powering market gains in recent times thanks to the technology’s future potential. By using AI, companies can become more efficient, develop better products faster, and more — and this could result in soaring earnings down the road.
That’s why companies are now investing in AI platforms, and this trend has helped earnings climb today for makers of the tools necessary for AI to function. These particular players don’t have to wait for AI to boost revenue and profit, and one in particular stands out right now.
I’m talking about chip designer Nvidia (NVDA -3.22%). The company’s graphics processing units (GPUs) power some of the most crucial AI tasks, like training and inferencing large language models, so that these models can then go on to do their job of solving complex problems.
If you want to set yourself up for an AI win, you should invest in a variety of stocks, from those using AI to improve their businesses to those selling AI tools. And to maximize your returns in this AI boom, you’ll want to include Nvidia in the mix. Here’s why this top stock is a must-have in your tech portfolio.
Image source: Getty Images.
Nvidia’s broadened revenue opportunity
First, a quick summary of Nvidia’s path so far. Several years ago, Nvidia’s GPUs mainly served the video games industry. However, as it became obvious that the GPU’s speed could serve many other industries, Nvidia’s revenue opportunity broadened. Fast forward to a few years ago, when AI began to emerge as the next high-growth technology area. Here, it was clear that the GPU’s ability to handle many tasks simultaneously made it perfect for those developing AI platforms.
Nvidia focused its attention there not only on selling GPUs but also on offering related products and services, such as enterprise software. Nvidia is now an AI powerhouse, generating more than $47 billion from this business last year — compared to about $10 billion from the video games industry.
In recent quarters, the company has reached record revenue, grown revenue and net income in the triple digits, and widened margins. Nvidia also holds 80% of the AI chip market and is known as the go-to source for premium AI chips.
Even Tesla CEO Elon Musk recently said: “There is currently nothing better than Nvidia hardware for AI.”
A fantastic track record
This fantastic track record is part of the reason Nvidia should be in your AI portfolio, but the rest of the reason may be even more important. That’s because Nvidia is set to remain in its dominant position despite growing competition from other chipmakers, even if those rivals gain more market share.
Nvidia should continue its leadership due to the high demand for AI chips and related products and thanks to its innovation. The level of demand is outstripping supply, and we’re only in the early days of AI development. That suggests demand could increase, and Nvidia and other companies, such as Intel and Advanced Micro Devices, can each score an AI win.
As for innovation, Nvidia is making this its priority, pledging to update its GPUs on an annual basis, which should keep it ahead of the crowd. Even if a rival releases a better chip today, a few months down the road, Nvidia will top that with its next GPU. Next up is the company’s Blackwell architecture and most powerful chip yet, set for release later this year, and Nvidia says it will launch “other Blackwells” down the road.
Nvidia’s stock has climbed in recent weeks, lifting valuation to 46 times forward earnings estimates compared to less than 30 times earlier this year. But even at this price, Nvidia represents a solid buy for the long-term investor because of the company’s well-established dominance — and its strategy to stay ahead.
And that’s why, if you want to maximize your returns in this AI boom, you’ll add Nvidia to your portfolio and hold on for the long term as the AI growth story continues to pick up speed.
Adria Cimino has positions in Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
