Nvidia: A Dominant Force in AI
How far can a company push the envelope in innovation and market superiority? Nvidia seems to have found the answer, with an unassailable 80% to 95% share in AI GPUs last year. This remarkable feat set off ripples in the tech industry, prompting giants like AMD and Intel to jump into the arena. Despite the competition, Nvidia’s lead is so commanding that its reign appears secure for the foreseeable future.
During the fourth quarter of 2024 ending in January, Nvidia hit record numbers with a 265% year-over-year revenue surge, netting $22 billion. Operating income skyrocketed by a staggering 983% to nearly $14 billion, predominantly propelled by a monumental 409% hike in data center revenue, indicating a surge in AI GPU sales.
While the success is undeniable, the cherry on top lies in Nvidia’s escalating free cash flow, which soared by 430% over the last year, surpassing AMD’s $1 billion and towering over Intel’s negative $14 billion. This cash influx strengthens Nvidia’s technological prowess and reinforces its hold on the market.
An Attractive Valuation
Amidst soaring stock prices, Nvidia’s stock continues to gain value. The price-to-earnings (P/E) and price-to-free-cash-flow ratios have both plunged in the past year, positioning the stock as one of the best-valued in 12 months.
Valuation metrics like P/E and price-to-free-cash-flow ratios offer insights into a company’s financial health. The downward trend in Nvidia’s figures suggests that now might be the optimal time to consider including its stock in your investment portfolio.
Promise of Future Growth
As a front runner in chip-making technology, Nvidia commands a key position in the tech ecosystem. Besides catering to AI developers, Nvidia’s chips power an array of devices, from cloud platforms to gaming consoles, laptops, custom-built PCs, and beyond. While the surge in AI GPU sales has fueled Nvidia’s exceptional financial performance, the resurgence in the PC market has also played a role.
The PC market, as per Gartner, witnessed a 0.3% surge in shipments in Q4 2023 after a prolonged hiatus. This rally in the market has positively impacted Nvidia’s sales, with its gaming segment witnessing a remarkable 56% year-over-year revenue uptick in the latest quarter.
With a strong foothold in AI and a recovering PC market, Nvidia’s prospects for the future shine brightly. Earnings-per-share estimates further bolster this outlook, hinting at substantial growth ahead.
Should Nvidia hit the estimated earnings of close to $35 per share by fiscal 2026, its stock could see a 41% increase over the next two years. Although this projection may not replicate last year’s exponential growth, it still outpaces the S&P 500’s growth since 2022, offering new investors an enticing opportunity to ride the wave of success.
