HomeMarket NewsThe Rise of Nvidia: A Long-Term Investment Gem in the AI Sector

The Rise of Nvidia: A Long-Term Investment Gem in the AI Sector

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Investing with a decades-long horizon brings a fresh perspective โ€“ itโ€™s not just about valuations but about sowing seeds for enduring growth. Big-picture trends, solid fundamentals, and a companyโ€™s vision are paramount.

One stellar contender in this realm is Nvidia, trading on the NASDAQ under the ticker symbol NVDA. The chip giant has been on a stratospheric trajectory, riding the wave of surging AI chip demand.

Breaking Ground and Fending off Adversaries

Nvidiaโ€™s ascendancy can be attributed to its early foray into the AI chip market, focusing on high-performance GPUs tailored for heavy workloads. The landscape of AI model training and operation demands intense computing power, a niche Nvidia capitalized on with its H100 chip, setting an industry benchmark. With a potential market share approaching 90%, Nvidia is not resting on its laurels, having recently unveiled cutting-edge chip models.

Moreover, Nvidia is not just a passive player awaiting challenges; it is actively warding off potential threats. Major tech stalwarts like Microsoft, Amazon, Meta Platforms, and Alphabet are brewing custom AI chips to rival Nvidiaโ€™s offerings. To preempt this, Nvidia has earmarked resources to form a new division dedicated to custom chip pursuits โ€“ a strategic defensive move. The companyโ€™s expansion isnโ€™t limited to chip sales; it has diversified its interests by backing emerging AI firms and partnering with industry heavyweights like Microsoft and OpenAI in ventures like the humanoid robotics startup Figure.

Fortifying Financial Foundations

Nvidiaโ€™s growth isnโ€™t confined to stock price spikes; its cash flow is burgeoning. With over $27 billion in free cash flow amassed over the past year and a balance sheet reflecting $26 billion in cash against $10 billion in long-term debt, Nvidia is amassing a formidable war chest. This financial cushion positions them to navigate the competitive landscape adeptly, whether by aggressive maneuvers, defensive postures, or rewarding investors through buybacks and dividends.

NVDA Revenue (TTM) Chart

NVDA Revenue (TTM) data by YCharts

Analysts are bullish on Nvidiaโ€™s future revenue trajectory, pegging it to reach $157 billion in 2027. With a presumed 44% conversion rate, this could translate to a staggering $70 billion in annual free cash flow, solidifying Nvidiaโ€™s financial prowess beyond competition.

Gazing Toward Tomorrow

The allure of long-term investing lies in envisioning future landscapes and the key players shaping them. Industries like autonomous driving, humanoid robotics, electric aircraft, and space travel, poised to boom in the following decades, represent fertile ground for growth.

As these nascent sectors burgeon, AI is poised to become their linchpin, with Nvidiaโ€™s chips potentially underpinning these technologies. Unless Nvidiaโ€™s market share crumbles, its influence in these domains seems imminent.

Whether Nvidia or another prospective long-term bet catches your fancy, consider investing gradually in the chosen entity and tracking its evolutionary journey. Let innovation and expansion be the flag bearers of your portfolioโ€™s growth.

Is Nvidia worth a $1,000 investment today?

Before diving into Nvidia stock, ponder this: The Motley Fool Stock Advisor team has cherry-picked what they deem the top 10 stocks for investors seeking meteoric returns. Nvidia may not be on this exclusive list, but these chosen equities could deliver substantial gains in the near future.

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John Mackey, the ex-CEO of Whole Foods under Amazon, sits on The Motley Foolโ€™s board. Randi Zuckerberg, former Facebook director and sister to Meta Platforms CEO, and Suzanne Frey, an Alphabet executive, are also board members. Justin Pope doesnโ€™t own shares in the mentioned stocks. The Motley Fool holds positions in and endorses Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. Additionally, it recommends options related to Microsoft. Disclosure is The Motley Foolโ€™s watchword.

The views expressed herein belong to the author alone and donโ€™t necessarily align with those of Nasdaq, Inc.

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