Nvidia: A Leading Player in AI and Stock Market Gains
The past few years have seen a resurgence in stock splits, a trend that gained traction during the 1990s but diminished in popularity until recently. New investors, drawn to the benefits of manageable share prices, have turned their attention to this practice once again. Companies typically opt for a stock split following years of impressive growth and robust financial performance, which often results in soaring stock prices.
This year showcases remarkable examples of companies that have embraced this trend.
The common factor among these diverse companies is their history of delivering impressive returns to shareholders over many years.
If I could buy only one stock right now, it would be Nvidia. Here’s why.
Image source: Getty Images.
Leadership and Vision
Many investors, including myself, view the immense potential of artificial intelligence (AI) as a key reason to invest in Nvidia. This aspect is crucial and will be explored further. However, a standout feature of CEO Jensen Huang’s leadership is his exceptional ability to anticipate emerging trends and develop the necessary solutions.
Nvidia introduced the graphics processing unit (GPU) in 1999, revolutionizing gaming. Yet, by 2006, the company adapted this technology for supercomputing. Today, GPUs are essential for cloud computing and data centers, capturing an impressive 98% of the data-center GPU market last year, as reported by TechInsights.
Furthermore, Huang strategically positioned Nvidia to embrace the AI revolution as early as 2013, betting on technology that had not yet gained traction. When AI surged in popularity last year, Nvidia benefitted from the foresight cultivated a decade earlier.
Impressive Financial Outcomes
The saying goes, “A picture paints a thousand words,” but in Nvidia’s case, its financial outcomes tell a compelling story. For the fiscal 2025 second quarter, which ended on July 28, Nvidia achieved record revenue of $30 billion, reflecting a 122% increase year over year and a 15% increase from the previous quarter. The growth was fueled by record data-center revenue of $26.3 billion, which soared by 154%. Profits also increased, with diluted earnings per share (EPS) reaching $0.67, a rise of 168%.
Management anticipates Nvidia’s strong performance to persist, although at a more moderate pace. The company projects revenue of $32.5 billion, indicating a 79% year-over-year growth rate accompanied by an increase in profitability. While this growth seems slower than the remarkable triple-digit gains of prior quarters, it remains a significant achievement.
Why Is This a Good Time to Buy?
You may wonder why now is the right time to invest in Nvidia. The stock has risen sharply—837% since the start of last year, hitting a new high just this week. Some believe that most of the opportunities have already been realized.
However, we are merely at the beginning of the AI journey, with new applications still emerging. Critics might highlight initial setbacks as evidence that AI is not ready for widespread use. While this might hold some truth, it is likely that any existing issues will soon be resolved, allowing AI to reach its full potential. Thus, the most significant gains in the AI sector may still lie ahead.
Experts are divided on the future size of the generative AI market. Bloomberg Intelligence estimates it could reach $1.3 trillion by 2032, while Ark Invest’s Big Ideas 2024 report predicts the AI software market could see an additional $13 trillion in spending by the end of the decade, with an optimistic outlook reaching as high as $37 trillion. The actual scale of generative AI remains uncertain, yet forecasts continue to grow.
Skeptics may argue that Nvidia’s stock is overpriced and “priced to perfection.” Currently, it trades at 64 times earnings and 35 times sales, which can seem excessive. Yet, considering analysts’ consensus estimates, which have previously proven conservative, Nvidia is expected to generate EPS of $4.05 for its fiscal 2026 starting in January. Given the stock’s recent closing price, this equates to around 33 times forward earnings, a figure only slightly higher than the average multiple of 30 for the S&P 500. Analysts also foresee Nvidia’s profits growing by 52% annually over the next five years, demonstrating that the stock may justify its premium price.
This combination of factors makes a strong case that Nvidia remains on a growth trajectory, the market for AI is expanding, and the stock may not be as overvalued as it seems.
Additionally, I trust Huang’s ability to identify and pivot toward the next big technological advancement, which stands to benefit both the company and its investors.
For these reasons, if I could only choose one stock today, it would undoubtedly be Nvidia.
Should You Invest $1,000 in Nvidia Right Now?
Before investing in Nvidia, consider the following:
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Danny Vena holds positions in Chipotle Mexican Grill, Nvidia, and Super Micro Computer. The Motley Fool holds positions in and recommends Chipotle Mexican Grill and Nvidia, and recommends Broadcom. The Motley Fool’s disclosure policy is available.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
