Artificial intelligence (AI) has made significant advancements in recent years, surprising the tech world with its capabilities. While earlier versions of AI have been around for decades, the next-generation algorithms are capable of creating a wide range of original content, including images, text, and audio.
Generative AI, in particular, has proven to be a game-changer. It can summarize emails and draft potential responses, create presentations from existing data, search the internet and company databases based on specific criteria, and even draft and debug computer code. The potential of this technology is immense, and its development is being compared to the creation of the microprocessor, the personal computer, the internet, and the mobile phone.
When it comes to AI stocks, one company stands out with the most potential upside: Nvidia (NASDAQ: NVDA). Known for pioneering graphics processing units (GPUs) in the video game industry, Nvidia has successfully adapted this technology to various applications, including AI. Parallel processing, the underlying technology that made GPUs effective, allows computationally complex tasks to be broken down into smaller bits, making them more manageable.
Nvidia’s success in AI is evident in its recent financial results. In its fiscal 2024 third quarter, the company reported record revenue of $18.1 billion, a 206% increase compared to the previous year. Its data center segment, which includes chips used for AI processing, accounted for 80% of the company’s revenue, generating record revenue of $14.5 billion, a 279% jump.
The potential for AI is estimated to be vast. Conservative estimates suggest generative AI could be worth $1.3 trillion by 2032. Cathie Wood, CEO of Ark Investment Management, believes the total addressable market for AI could reach $37 trillion by 2030. Nvidia’s processors play a crucial role in enabling this potential.
Nvidia’s dominance in the field is another reason to consider investing in the stock. The company controls an estimated 95% of the data center market, and this market is expected to grow from $263 billion in 2022 to $603 billion by 2030. In the realm of machine learning, Nvidia also holds a significant market share of 95%.
While Nvidia’s valuation may seem high with a price-to-earnings ratio of 96 and a price-to-sales ratio of 40, its growth justifies this valuation. The company has been consistently delivering triple-digit growth, which is expected to continue. Its price/earnings-to-growth (PEG) ratio, a benchmark for undervalued stocks, is less than 1.
As the digital transformation and adoption of AI continue to accelerate, Nvidia is well-positioned to benefit. With its market-leading position, strong financial performance, and modest valuation, Nvidia offers a once-in-a-generation investment opportunity for those looking to capitalize on the AI revolution.
Investors are advised to conduct their own research and consider their own risk tolerance before making any investment decisions.
