Nvidia (NASDAQ: NVDA) is emerging as a frontrunner in the artificial intelligence (AI) race. The tech powerhouse offers the most advanced chips along with an extensive range of AI services, establishing itself as the go-to provider for those initiating AI projects. This innovation has led to impressive financial outcomes, reflected in both earnings and stock performance.
The company’s share price has skyrocketed by 2,600% over the past five years, while this year alone it is on track for a remarkable 183% increase. Earnings reports show Nvidia experiencing triple-digit growth in both revenue and profit consistently, with AI customers contributing an astonishing 87% to its most recent revenue figures.
Nvidia has achieved a total of $48.9 billion in data center sales during the first and second quarters of this year, significantly up from $14.6 billion during the same timeframe last year. While this growth is impressive, data center sales are just one aspect of how AI is likely to drive Nvidia’s continued success in the upcoming years. Let’s explore another key factor behind Nvidia’s earnings potential.
Nvidia’s Dominance in AI Chips
Nvidia commands a substantial 80% share of the AI chip market, thanks to its high-performance graphics processing units (GPUs). Originally designed for gaming, these chips have expanded their applications into various fields, most notably AI.
With the AI industry booming, Nvidia has seen a surge in the sale of its GPUs and related products. The company reported $30 billion in total revenue last quarter, representing more than its total revenue for the entire fiscal year of 2023.
Optimism about future growth abounds, driven by the overall expansion of the AI market alongside Nvidia’s ongoing commitment to innovation. Analysts expect the AI market, valued at $200 billion today, to reach $1 trillion by the end of the decade. Should this projection materialize, Nvidia, as a leading supplier of essential AI products and services, stands to benefit extensively. The company’s annual updates to its GPU technology should help it maintain a competitive edge in the evolving market.
Next, let’s examine another avenue through which AI will enhance Nvidia’s earnings. Nvidia isn’t only a provider of AI technology; it actively uses AI within its operations. This approach is set to improve efficiency, streamline processes, and ultimately reduce costs.
Nvidia’s Internal Use of AI
Nvidia has already implemented AI in various aspects of its business including chip design and supply chain management. CEO Jensen Huang highlighted this during his speech at the Gartner IT Symposium, citing future plans for the company to have 50,000 employees supported by over 100 million AI assistants. Currently, Nvidia employs about 30,000 people, indicating a significant increase in its workforce driven by AI technologies, which should enhance overall productivity and decrease costs.
This prospect is promising for Nvidia’s gross margin, which has already surpassed 70% with early AI applications. The company aims for a gross margin in the mid-70% range for the third quarter and for the full year. Over the long haul, the integration of AI assistants could solidify strong margins, while ongoing revenue growth through innovation and demand could significantly boost earnings.
Nvidia emerges as a clear benefactor in the AI revolution. Not only does it profit from selling its products, but its internal use of AI tools is also poised to enhance operational efficiencies and drive earnings upward. For these reasons, Nvidia presents an appealing investment opportunity in the context of AI-driven growth.
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Adria Cimino currently has no position in any stocks mentioned. The Motley Fool has positions in and recommends Nvidia. They have a disclosure policy in place.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.