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A Deep Dive into Nvidia’s Dominance in the AI Space

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When it comes to artificial intelligence (AI), the focus is often on the stellar lineup of tech giants referred to as the “Magnificent Seven”: Microsoft, Apple, Alphabet, Amazon, Meta Platforms, Tesla, and Nvidia (NASDAQ: NVDA). Among these behemoths, Nvidia is emerging as the unsung hero. Their graphics processing units (GPUs) play a pivotal role in driving applications across various sectors like e-commerce, cloud computing, and robotics.

During Nvidia’s fiscal 2024 fourth-quarter earnings call on Feb. 21, CEO Jensen Huang made a bold statement by declaring that “accelerated computing and generative AI have hit the tipping point.” This proclamation comes at a time when Nvidia’s stock has surged over 230% in the last year, sparking questions among investors about the right time to buy.

Unprecedented Growth in Nvidia’s Business

Often, a surge in demand for a company’s products results in soaring revenue, but not without operational challenges. However, Nvidia defies this norm. The company showcases a unique ability to translate heightened demand into impressive revenue, robust profits, and cash flow. The trajectory depicted by Nvidia’s revenue, gross profit, net income, and free cash flow over the last decade highlights this exceptional trend.

Moreover, Nvidia is not content with its current success. While the demand for their cutting-edge A100 and H100 GPUs remains high, the company continues to invest in innovation. With upcoming releases of next-generation chips like the H200 and the highly anticipated B100 in 2024, Nvidia’s proactive approach to product advancement positions them favorably in the market.

An AI GPU chip sitting on a circuit board.

Image Source: Getty Images

The Unfolding AI Revolution

As AI applications evolve, projections for the technology’s market size are becoming more ambitious. A recent forecast by a top Nvidia executive suggests that AI-powered chips and software could potentially reach a value of $600 billion. While the accuracy of such forecasts remains uncertain, the projected growth underscores the momentum behind Nvidia.

NVDA Revenue (TTM) Chart
NVDA Revenue (TTM) data by YCharts.

With Nvidia’s impressive trailing-12-month revenue and positive long-term growth outlook, the company’s status as an AI GPU market leader is well-supported by Wall Street analysts who foresee sustained demand in the years ahead.

Timing the Nvidia Stock Buy

The primary risk for Nvidia isn’t just its valuation, but also the intensifying competition in the market. While AMD currently poses a significant challenge, the development of inference and training chips by tech giants like Amazon and Microsoft adds complexity to Nvidia’s landscape. However, Nvidia’s expansion into software, with its revenue from software and services hitting $1 billion during the last quarter, presents a lucrative opportunity.

Although Nvidia’s price-to-sales ratio of 32 may seem steep compared to historical levels, the company’s strong financial performance, ongoing product innovation, and foray into software services warrant the premium. Given these factors, coupled with Nvidia’s unique business model, comprehensive platform, and the AI trend’s tailwinds, now appears to be an opportune time to invest and hold Nvidia shares for the long term.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Spatacco holds positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. 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 maintains a disclosure policy.

The opinions expressed herein belong to the author and may not align with those of Nasdaq, Inc.

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