Nvidia (NASDAQ: NVDA) continues to thrive amidst the artificial intelligence (AI) boom, consistently reporting impressive earnings growth in the triple digits. This leading company holds a commanding 80% share in the AI chip market. However, Nvidia’s success is attributed not just to its chips but also to a comprehensive range of AI products and services, establishing it as the premier choice for companies embarking on AI projects.
The stock has skyrocketed by a staggering 2,700% over the last five years, with current momentum suggesting a gain of more than 170% this year alone. Despite this remarkable performance, investors remain uncertain about Nvidia’s ability to sustain such extraordinary growth rates moving forward.
Recently, CEO Jensen Huang provided some encouraging insights that may ease investor concerns regarding future performance.
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Nvidia’s Journey to AI Dominance
Nvidia’s rise to prominence in AI can be traced back to its powerful graphics processing units (GPUs). Initially designed for the gaming industry, the company recognized that these chips could handle multiple tasks at once, making them suitable for other applications, including AI.
While Nvidia still generates revenue from gaming, which rose by 16% in the last quarter, AI has become the company’s largest business sector. During this quarter, revenue from data centers—encompassing AI products and services—accounted for 87% of total revenue, reaching a record $26.3 billion. Notably, total quarterly revenue now exceeds what the company made in all of the 2023 fiscal year.
Yet, investors might wonder whether Nvidia can maintain its high growth rates. Historically, rapid earnings growth does not continue indefinitely. Nvidia’s projected revenue for the next quarter suggests a more modest, double-digit increase compared to last year.
Now, let’s delve into the significant news shared by CEO Jensen Huang. He highlighted an ongoing trend in the computing and AI landscape—updating outdated computer systems and data centers. Huang revealed during a recent podcast interview that around $1 trillion of outdated systems need upgrading, and currently, only $150 billion of that task has been completed.
Future Billions on the Horizon
This indicates vast business opportunities ahead for Nvidia, potentially leading to substantial earnings growth and, possibly, notable stock performance.
While this forecast does not guarantee triple-digit earnings growth every quarter, that’s not necessarily a bad thing. Due to high comparative figures already achieved this year, growth comparisons will become more challenging.
It’s important to focus on Nvidia’s actual earnings levels and its impressive gross margin, reported at over 70%. When assessing these factors, Nvidia’s current position and long-term prospects appear exceptionally favorable.
Moreover, Nvidia’s leadership in the AI sector and its ongoing commitment to innovation, including an annual GPU update pledge, positions the company favorably as the world updates its computing systems.
In essence, Nvidia’s best days may not just be in the past; they could extend well into the future. As such, now might be an opportune time to consider investing in Nvidia stock, which is currently valued at 47 times projected earnings, a reasonable figure considering its historical performance, potential, and market status.
Is Now the Right Time to Invest in Nvidia?
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Adria Cimino holds no positions in any stocks mentioned. The Motley Fool has interests in and recommends Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the author’s and do not necessarily represent those of Nasdaq, Inc.
