Nvidia (NASDAQ: NVDA) stock has been like a freight train barreling through the financial landscape, fueled by its pivotal role in the realm of artificial intelligence (AI). The company’s graphics processing units (GPUs) are the powerhouse behind vital AI functions, driving the training and inferencing of substantial language models. These models then execute intricate tasks with finesse. Nvidia shines brightly, commanding an 80% market share in the AI chip world due to its ultra-speedy GPUs, translating into phenomenal earnings growth.
Notably, Nvidia has blitzed past analysts’ earnings projections in the last four quarters. Its revenue and net income have skyrocketed into triple and quadruple digits in recent quarters, soaring well over billions of dollars. Consequently, the stock has skyrocketed over 200% in the past year.
With such a dynamic backdrop, the question arises: Is now the time to dive headfirst into Nvidia stock ahead of its May 22 earnings release?
Image source: Getty Images.
Nvidia’s Evolution from Gaming to AI Dominance
Let’s rewind the clock and peek into Nvidia’s evolutionary journey. Once merely a player in the video game realm, the company predominantly reaped revenues from the gaming industry with its GPUs breathing life into virtual worlds. However, the GPUs’ inherent capability to tackle myriad tasks concurrently unveiled the potential for groundbreaking success across diverse sectors. The inception of CUDA, a parallel computing platform, propelled the GPU into general computing, heralding the era of AI.
Over time, Nvidia has steadily advanced its revenues from the data center segment — inclusive of its AI solutions — now clinching the throne as the prime driver of growth and revenue for the company. In the latest quarter, data center revenue surged over 400% year-on-year to a staggering $18.4 billion, outshining its gaming revenue of $2.9 billion in what was an all-time high total revenue of approximately $22 billion.
Besides GPUs, Nvidia offers an array of products and services, featuring an expanding cloud software platform expediting the development of a company’s AI applications. Accessible via major cloud providers globally, Nvidia’s offerings beckon businesses to explore and tap into its innovations.
Nvidia’s Fortitude Against Rivals
While Nvidia faces surging competition from the likes of Intel and Advanced Micro Devices, armed with their latest high-octane chips, its resilience shines through. Intel’s much-hyped Gaudi 3 AI accelerator purportedly outperformed Nvidia’s H100 in terms of performance and pricing. Likewise, tech behemoth Amazon, through its Amazon Web Services (AWS), vends Nvidia products alongside its proprietary training and inference chips.
Despite the encroaching rivals, Nvidia’s stronghold in the market remains unwavering, luring seekers of premium chips with its pioneering edge, superior performance, and unwavering commitment to innovation. The impending launch of its Blackwell architecture, boasting six new technologies including its most potent chip to date, further cements Nvidia’s leadership position.
Turning our gaze to the horizon, Nvidia’s forecast for the first quarter of 2025 projects revenue of about $24 billion, marking a monumental 200% surge year-on-year. Moreover, the forecasted GAAP gross margin of 76.3% reflects a significant leap from the previous period when GAAP gross margin stood at 64.6%.
However, a potential storm cloud looms on the horizon in the form of U.S. government restrictions on AI chip sales to China. While Nvidia has crafted a new chip to align with regulatory demands, its market reception remains uncertain.
Is Now the Time to Invest in Nvidia?
Returning to the pivotal question: Is it wise to dive into Nvidia before the May 22 earnings unveil? Perhaps not.
As a long-term investor, the vicissitudes of Nvidia’s stock price post-earnings may not drastically impact your investment journey over the five- to ten-year horizon, your minimum investment timeframe. This liberates you from the pressure of impending events like earnings announcements, providing the freedom to make prudent investment decisions.
Nevertheless, my optimism towards Nvidia’s trajectory remains unfaltering, bolstered by its resilient market stance, unyielding focus on innovation, and the nascent stage of the AI saga. Investing in Nvidia, whether pre- or post-May 22, seems like a promising prospect.
Considering an Investment in Nvidia?
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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. Adria Cimino holds positions in Amazon. The Motley Fool has holdings in and recommendations for Advanced Micro Devices, Amazon, and Nvidia. It also recommends Intel and offers these options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool upholds a disclosure policy.
