Nvidia, a leading chipmaker, has been a tried-and-tested strategy for making money in the stock market. With an investment of just $1,200 made two decades ago, shareholders can now enjoy returns of over $1 million. The company’s remarkable surge in stock price is attributed to its diverse growth drivers, including PC and smartphone gaming, the increasing chip content in cars, cloud gaming, and high-performance computing in data centers.
However, artificial intelligence (AI) has emerged as a powerful growth driver for Nvidia. With AI adoption still in its early phases of growth, several factors will benefit the company. One key catalyst is Nvidia’s dominance in the data center market, where it controls 98% of the $123 billion AI chip market. The company’s rivals have struggled to make significant gains, and the size of the AI chip market is forecast to grow from $123 billion this year to $311 billion by 2029.
Nvidia’s data center business has become nearly 87% of its overall revenue, driven by a 112% increase in data center revenue. The company sees a much bigger opportunity in the data center business beyond AI, with “$1 trillion worth of computing systems and data centers around the world” being upgraded to handle machine learning workloads. This shift towards GPU-powered accelerated computing presents a gigantic growth opportunity for Nvidia.
The transition to accelerated servers, fueled by energy efficiency, is also expected to gain momentum. With data centers accounting for 1% to 2% of global electricity consumption and projected to double by the end of the decade, the adoption of GPUs in data centers will increase. Moreover, Nvidia’s enterprise software business has gained traction, with customers using its AI-focused solutions to integrate generative AI into their operations.
As a result, analysts have raised their revenue expectations for the company, citing its dominance in the AI market and huge addressable opportunities. With an estimated annual growth rate of 38% through 2030 and $155 billion in revenue, Nvidia’s enterprise AI software market presents a lucrative opportunity. The company’s forward earnings multiple is 33 times, comparable to the tech-heavy Nasdaq-100 index.
Investors looking to build a million-dollar portfolio can consider buying Nvidia, with its strong growth drivers and significant addressable opportunities.
Source: https://www.fool.com/investing/2024/11/27/this-magnificent-stock-has-made-many-millionaires