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The Rise of Nvidia: A Beacon of Hope for Many an Investor

    The Rise of Nvidia: A Beacon of Hope for Many an Investor

The artificial intelligence (AI) domain unleashed its potential explosiveness the previous year and shows no hints of a slowdown. OpenAI’s ChatGPT launch fueled a fresh wave of enthusiasm in AI, prompting countless tech enterprises to pivot their models towards this burgeoning sector.

The escalating demand for AI services correlatively pushed up graphics processing unit (GPU) sales, a pivotal component in training AI models. As a front-running chipmaker, Nvidia (NASDAQ: NVDA) reaped immense benefits from the escalating demand for GPUs, securing an early lead in the industry and swiftly grabbing a lion’s share in AI chips in 2023.

Nvidia’s financials observed a meteoric rise in the past year, with its stock achieving triple-digit growth since last February. Simultaneously, the enduring demand for GPUs positions the company well, considering projections of the AI market expanding at a compounded annual growth rate of 37% until at least 2030. Consequently, Nvidia stands as one of the premier investment opportunities in this high-growth sector.

The Unfettered Ascendancy of Nvidia in the Recent Year

Nvidia has long been a dominant force in the GPU landscape, significantly surpassing competitors like Advanced Micro Devices and Intel. The company’s dominance positioned it advantageously to supply its hardware to a multitude of AI-centric firms right at the onset of the AI boom last year.

As a result, Nvidia’s stock has surged by 240% over the past year, concomitant with an upsurge in earnings. In its latest quarter (Q4 of 2024 ending in January), the company witnessed a staggering 265% year-over-year revenue surge to $22 billion. Noteworthily, operating income leaped by an astounding 983% to nearly $14 billion. The monumental growth was predominantly propelled by a 409% hike in data-center revenue, reflecting a substantial spike in AI GPU sales.

In tandem with the soaring earnings trajectory, Nvidia’s free cash flow skyrocketed by 430% over the past year, surpassing $27 billion, a stark contrast to AMD’s $1 billion and Intel’s negative $14 billion.

Consequently, even with fresh GPU releases from competitors, Nvidia’s early entry into AI potentially propelled it forward, armed with substantial cash reserves to continue technological investments and fortify its market dominance.

The Lingering Supremacy of Nvidia in the AI Realm

Last year, Nvidia claimed an estimated 80% to 95% market share in AI GPUs, spurring several tech companies to foray into the sector. Notably, in 2024, AMD and Intel commenced shipping new AI GPUs to challenge Nvidia’s offerings. However, prevailing chip-market trends suggest that Nvidia’s supremacy will be arduous for challengers to usurp.

While AMD and Intel have stepped into the sector, Nvidia has maintained over 80% market share in desktop GPUs. Intel’s industry entry was recent, whereas AMD has a longstanding history in desktop GPUs, spanning decades. Nonetheless, AMD’s GPUs command a meager 10% of the market share.

A similar narrative unfolded in the central processing unit (CPU) arena. Intel reigned supreme in CPUs for years, with an 82% market share in early 2017, when AMD debuted its Ryzen line of CPUs.

Although AMD managed to carve a significant chunk from Intel’s share, Intel still commands the majority of the CPU market, with a share exceeding 60%, juxtaposed against AMD’s 36%.

Drawing a parallel from the CPU market, Nvidia might witness some erosion in AI GPU market share to its competitors in the upcoming year. Nevertheless, sustaining its leading position will enable it to reap substantial gains from the AI field for years to come.

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NVDA PE Ratio Chart

Data by YCharts.

Nvidia’s price-to-free cash flow (P/FCF) and price-to-earnings (P/E) ratios plunged in the past year (as observed in the chart above), signaling that its stock is currently at one of its most attractively valued positions in a year.

P/E is derived by dividing a company’s stock price by its earnings per share. Meanwhile, the P/FCF ratio computes its market cap against free cash flow. These metrics offer valuable insights into a company’s financial health, with lower values denoting superior value. Nvidia’s descending figures could make it an opportune moment to delve into adding its stock to your portfolio.

Alongside its towering presence in AI and formidable financial growth trajectory, Nvidia seems destined to keep churning out millionaires, and you wouldn’t want to pass this chance by.

Should you invest $1,000 in Nvidia right now?

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Dani Cook holds no position in any of the stocks mentioned. The Motley Fool has stakes in and endorses Advanced Micro Devices and Nvidia. The Motley Fool endorses Intel and suggests options like long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool stands by a disclosure policy.

The thoughts and opinions conveyed herein represent the perspectives of the author and may not necessarily align with those of Nasdaq, Inc.