Nvidia’s Strong Position in the Growing AI Market

A select group of companies is pivotal to the artificial intelligence (AI) sector, with Nvidia (NASDAQ: NVDA) taking a prominent role. The firm’s innovative designs in advanced processors for AI have significantly boosted its market position and share price in recent years.

Nvidia’s management has frequently discussed the impact of generative AI during recent earnings calls, according to research from The Motley Fool. The key question remains: What are Nvidia’s long-term opportunities in generative AI? Here are three major prospects.

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Surge in Data Center Spending

In recent discussions, many technology companies have highlighted substantial AI spending. Often, these figures reach into the billions, primarily focusing on data center infrastructure.

The major tech players are entrenched in a fierce AI competition, investing heavily to gain an edge. Nvidia stands to gain from this trend, as it produces processors designed for training sophisticated AI models.

For ongoing development and management of AI models, companies must enhance their data centers to boost computing capabilities. This shift indicates a transition from traditional data centers to AI-driven centers, as mentioned in Nvidia’s earnings calls.

According to Nvidia CEO Jenson Huang, the market for AI data center spending could reach $2 trillion over the next five years. The company’s performance is already reflecting this trend, as data center revenue more than doubled to $30.8 billion in the fiscal third quarter (ending Oct. 27).

Growth in AI Cloud Computing Services

The rise in AI cloud computing services is closely linked to data center investments, but it deserves separate consideration due to its unique implications.

While part of the data center expenditure will fund new AI model development, a significant portion will go towards enhancing AI cloud services. These services encompass conversational AI, enterprise AI applications, AI agents, and multimedia generation.

Global cloud revenue driven by AI could hit $2 trillion by 2035, as projected by Goldman Sachs. As new AI cloud services become available, Nvidia’s processors will likely power many of these innovations.

Potential of the Autonomous Vehicle Market

Nvidia is also at the forefront of developing autonomous vehicle technology and has collaborated with several automakers to integrate its hardware and software solutions. Recently, Uber Technologies and Nvidia announced a partnership to leverage Nvidia’s generative AI technology to accelerate safe and scalable autonomous driving solutions.

This initiative joins Nvidia’s partnerships with notable companies like Toyota Motor, Volvo, and BYD. The commercial potential of autonomous vehicles is vast, with Move Strategy Consulting estimating it could reach $2.3 trillion by 2030. Nvidia has already seen benefits from this sector, with its automotive division generating $449 million in the first quarter of fiscal year 2025 (ending Oct. 31, 2024), a 72% year-over-year increase.

Currently, Nvidia’s automotive segment is on pace for an estimated $5 billion annual run rate this year. Huang remains optimistic about future growth, predicting at the recent CES conference that autonomous vehicles could become the first multitrillion-dollar robotics industry.

Valuation Concerns Amid High AI Potential

Nvidia’s stock trades with a forward price-to-earnings multiple of 32.5, compared to the S&P 500‘s forward P/E of 24.5. While this suggests that Nvidia shares are not a bargain at the moment, they are still relatively well-positioned against many other AI stocks that may lack similar potential.

Should You Invest in Nvidia Now?

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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group, Nvidia, and Uber Technologies. The Motley Fool recommends BYD Company. 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.