Nvidia, the semiconductor company behind popular graphics processing units (GPUs), has seen its shares surge 910% over the last two years, making it the best-performing member of the S&P 500. The company’s stock is expected to continue growing due to its dominance in artificial intelligence (AI) and its participation in other hardware verticals.
Nvidia participates in several parts of the AI economy, including data center GPUs, AI accelerators, and AI networking gear. The company’s revenue share in AI accelerators exceeds 80%, and analysts expect it to maintain its market share for at least two to three years.
The company’s ecosystem of software development tools, known as CUDA, streamlines data preparation, model training, and application development across various AI use cases. Nvidia’s participation in other hardware verticals, such as AI networking gear, also contributes to its dominance in the industry.
A recent analysis by Goldman Sachs predicts that Nvidia will remain the industry standard for AI accelerators due to its competitive advantage in both hardware and software capabilities. The company has an important catalyst on the horizon with the launch of its next-generation Blackwell GPU, which is expected to begin production in the current quarter.
The demand for the new GPUs is strong, and they are already sold out for 12 months. According to Grand View Research, AI accelerator sales are projected to grow at 29% annually through 2030, while AI networking sales are forecast to compound at 33% annually through 2032.
As a result, Wall Street expects Nvidia earnings to increase at 35% annually over the next three years, with a consensus estimate of $150 per share. This makes the current valuation of 63 times earnings look reasonable, and gives a PEG ratio of 1.8, which is a material discount to the three-year average of 3.
Overall, Nvidia’s stock appears to be a good investment opportunity due to its strong growth prospects and dominant position in the AI industry.
Source: https://www.fool.com/investing/2024/11/04/new-stock-split-ai-stock-in-dow-jones-soar-925-buy