Nvidia’s Market Dominance: A Path to Continued Success in AI

Over the past two years, Nvidia (NASDAQ: NVDA) has consistently outperformed the stock market. In 2024, its shares rose more than 170%, and in 2023, they increased by 238%. This performance stands in contrast to the single-digit gains of the S&P 500 during the same time. The driving force behind Nvidia’s explosive growth lies in its leadership in artificial intelligence (AI) technology. Analysts predict that the current $200 billion AI market will exceed $1 trillion by the end of the decade, positioning Nvidia to reap significant rewards.

Nvidia’s impressive success is evident in its earnings, which have surged into the triple digits for most recent quarters. The company’s growth has attracted a large number of investors, leading to a remarkable increase in stock prices. However, after such an uptrend, some shareholders are concerned about a potential slowdown in Nvidia’s performance in the coming year.

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Despite these concerns, I believe Nvidia is poised to continue its strong performance. Here’s why.

Image source: Getty Images.

Nvidia: The Power Behind AI Advancements

To understand Nvidia’s future prospects, it’s important to look at the company’s journey so far. Nvidia specializes in graphics processing units (GPUs), which are essential for various AI functions, including model training and inference. Customers choose Nvidia for its superior and efficient GPUs, which, despite their higher prices compared to competitors, offer long-term savings due to greater efficiency.

In addition to GPUs, Nvidia has expanded its offerings to create a thriving AI ecosystem, which includes networking solutions and enterprise software that are widely available on public cloud platforms.

The robust demand for Nvidia’s products has resulted in record revenues consistently, with the latest figures exceeding $35 billion. Nvidia also enjoys a substantial profit margin, maintaining over 70% gross margin on sales.

The Anticipation of Blackwell Revenue

Now, let’s delve into why I am optimistic about Nvidia’s stock performance this year. Nvidia is set to launch a highly anticipated new product, the Blackwell architecture, in this quarter. This development is expected to add billions to its revenue stream almost immediately.

Blackwell is a customizable platform featuring seven different chips, various networking options, and other valuable features for users. Major technology firms are eager to adopt Blackwell, with some already showcasing it on social media. Notably, this fall, Microsoft claimed that its Azure service was the first cloud platform to use Blackwell.

Production of Blackwell is ramping up in the current fiscal fourth quarter, with expectations of several billion dollars in revenue from this product alone. Given that demand exceeds supply, we can anticipate sustained revenue growth for Blackwell in the future. Additionally, Nvidia is committed to keeping its gross margin above 70%, even in the early phases of product launches when costs are typically higher.

Investor Enthusiasm for Nvidia Grows

With the launch of Blackwell on the horizon, excitement around Nvidia is likely to escalate, potentially driving the stock price higher. If Nvidia successfully maintains its projected gross margin, investor confidence about future earnings is set to strengthen. Furthermore, Nvidia has promised annual updates to its GPUs, ensuring that it stays ahead of competitors.

Currently, Nvidia trades at 46 times forward earnings estimates. While this may appear high, it is justified by the company’s track record and promising growth potential in a rapidly expanding market.

In conclusion, even after remarkable increases in share price recently, Nvidia’s story of growth appears far from over, suggesting another strong year ahead.

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*Stock Advisor returns as of December 30, 2024

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. 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 has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.