Artificial intelligence (AI) has made remarkable strides, greatly expanding its capabilities, and surprising the tech world with its latest advancements. The technology, which has been in existence for decades, has evolved into next-generation algorithms far beyond its original capabilities. New advancements now enable AI to create a range of original content, including images, text, and audio.
Generative AI, in particular, can now accomplish tasks such as summarizing emails, drafting potential responses, creating presentations from existing data, searching the internet and company databases using specific criteria, and even drafting and debugging computer code.
Microsoft co-founder and former CEO Bill Gates boldly proclaimed, “The development of AI is as fundamental as the creation of the microprocessor, the personal computer, the Internet, and the mobile phone.” This proclamation resonates with an increasing number of tech enthusiasts, underlining the immense potential of AI.
Amid the numerous AI stocks positioned to reap the benefits of the AI transition, one stock stands out with arguably the most potential upside: Nvidia (NASDAQ: NVDA).
Image source: Getty Images.
Nvidia’s Evolution Beyond Gaming
Nvidia’s innovative graphics processing units (GPUs) initially revolutionized the video game industry by rendering lifelike images, but its subsequent decision to adapt this technology to other applications has been instrumental to its success in AI. At the core of Nvidia’s success is parallel processing, which breaks computationally complex tasks into smaller bits, making them more manageable.
From these humble origins, Nvidia has expanded its technology to various applications, including high-performance computing, cloud computing, data centers, and AI. Each new application has expanded the company’s total addressable market, estimated by management at $1 trillion early last year — and that was before the rapid adoption of generative AI.
Nvidia’s recent performance exemplifies the vast and expanding opportunity. In Nvidia’s fiscal 2024 third quarter (ended Oct. 29), it delivered record revenue of $18.1 billion, a 206% surge, while its diluted earnings per share (EPS) of $3.71 soared 1,274%. The company’s data center segment, which includes chips used for AI processing, generated record revenue of $14.5 billion, accounting for 80% of the company’s revenue.
Nvidia is poised to report the results of its fiscal fourth quarter next week, and its forecast is eye-opening. The company anticipates record revenue of $20 billion at the midpoint of its guidance, up 230% year over year, with AI driving this growth.
As the potential applications for AI grow, so do the estimates of the opportunity. Conservative estimates suggest generative AI could be worth $1.3 trillion by 2032, while more bullish estimates put the total addressable market for AI as high as $37 trillion by 2030, according to Cathie Wood, CEO of Ark Investment Management. Regardless of the exact size of the opportunity, it is bound to be substantial, with Nvidia’s processors at the forefront of making it all possible.
Nvidia’s Dominance in AI and Machine Learning
Aside from its financial performance, Nvidia’s dominance in the field of data centers and machine learning further solidifies its leading position in AI. The company controls an estimated 95% of the data center market, which is projected to grow from $263 billion in 2022 to $603 billion by 2030. Similarly, Nvidia boasts a market share estimated at 95% in machine learning, according to data compiled by New Street Research.
This underscores the inseparable relationship between data centers and AI, with Nvidia as the clear choice for both. As companies continue to embrace generative AI, there is every indication that Nvidia processors will remain the industry standard.
Nvidia’s Value Amid Growth
The subject of Nvidia’s valuation is hotly contested. Although traditional metrics show Nvidia trading at 96 times earnings and 40 times sales, its exponential growth, expected to continue in the short term, necessitates factoring this growth into its valuation. Nvidia’s price/earnings-to-growth (PEG) ratio is currently less than 1, indicating an undervalued stock.
The ongoing digital transformation and widespread adoption of AI show no signs of slowing, with Nvidia’s market-leading position and relatively modest valuation underscoring a rare opportunity for investors.
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Danny Vena has positions in Microsoft and Nvidia. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
