Manuvir Das, head of enterprise computing at Nvidia (NASDAQ: NVDA), sees a staggering $600 billion market opportunity for artificial intelligence (AI) chips and software. Booming demand for the game-changing technology is turbocharging the chipmaker’s sales and earnings growth.
Yet the bears claim that Nvidia’s stock price has come too far, too fast. Therein lies your opportunity. These skeptics are overlooking that the AI revolution is just beginning — and Nvidia likely has many years of exceptional growth still ahead. Thus, they’re still undervaluing its shares.
Here are some more reasons why Nvidia is set to continue to reward investors who buy and hold its stock.
Nvidia isn’t just growing at a solid clip. Its sales and profits are skyrocketing. Nvidia’s revenue surged 101% year over year to $13.5 billion in the quarter ended July 30. Its adjusted net income, meanwhile, increased 422% to $6.7 billion. These are stunning growth rates for a $1.1 trillion behemoth.
Don’t expect Nvidia’s mega-cap status to slow it down anytime soon. Management expects its sales growth to accelerate to 170% in the current quarter.
CEO Jensen Huang said that powerful technological trends are propelling Nvidia’s growth. “A new computing era has begun,” Huang said in the company’s earnings release on Aug. 23. “Companies worldwide are transitioning from general-purpose to accelerated computing and generative AI.”
Huang knows that collaborations are key to the semiconductor titan’s success. So, he’s taking a cooperative approach that’s proving popular with other tech leaders.
On Aug. 8, Nvidia partnered with AI developer platform Hugging Face to make it easier to build, train, and customize large language models on its Nvidia DGX Cloud supercomputer service. “Researchers and developers are at the heart of generative AI that is transforming every industry,” Huang said. “Hugging Face and Nvidia are connecting the world’s largest AI community with Nvidia’s AI computing platform in the world’s leading clouds.”
On Aug. 29, Nvidia announced a deal with Alphabet‘s Google Cloud that will more closely integrate the two companies’ hardware and software offerings. “We’re at an inflection point where accelerated computing and generative AI have come together to speed innovation at an unprecedented pace,” Huang said. “Our expanded collaboration with Google Cloud will help developers accelerate their work with infrastructure, software, and services that supercharge energy-efficiency and reduce costs.”
And on Sept. 8, Nvidia joined forces with Tata Group and Reliance Industries to bring advanced AI capabilities to India’s fast-growing economy. “The global generative AI race is in full steam,” Huang said. “Data centers worldwide are shifting to GPU [graphics processing unit] computing to build energy-efficient infrastructure to support the exponential demand for generative AI.”
Together, these and other collaborations should spur the adoption of AI and, by extension, demand for Nvidia’s chips, software, and services.
Many investors think that Nvidia’s stock must be richly priced after more than tripling so far in 2023. But that’s just not the case. Nvidia’s shares are currently trading for 42 times its projected earnings for its current fiscal year (2024) and less than 27 times analysts’ estimates for fiscal 2025. That’s arguably cheap for an elite business that’s expected to grow its profits by 222% this year and 55% next year.
Nvidia’s leadership seems to agree. The company’s board of directors approved a $25 billion share repurchase program on Aug. 21.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
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