Nvidia (NASDAQ: NVDA) created the GPU in 1999. That breakthrough transformed the media and entertainment sector by adding stunning visual effects to games, films, and professional design. GPUs from the firm are also the best for boosting complicated data center applications like AI and analytics.
Nvidia produced huge shareholder value during those occurrences. Its stock has risen 43,670% since 2000, compounding 28.6% yearly. That pace would make $5,000 invested in the firm 24 years ago worth $2.1 million today. Nvidia stock may still be a good investment, but similar gains are unlikely. Here's why
Nvidia was the best-performing S&P 500 stock last year, but its fourth-quarter results last week worried Wall Street. Because expectations were so high, several experts expected the stock to drop after the news. However, the business surpassed top and bottom line projections again, sending the stock up 10%.
Q4 sales rose 265% to $22.1 billion due to strong data center demand for AI processors. Nvidia also saw great growth in professional visualization processors and applications for digital content production. Pricing power drove a 10-percentage-point gross margin increase, boosting non-GAAP net income 486% to $5.16 per diluted share.
Nvidia used CUDA in 2006 to expose its GPUs to general-purpose computing and launch its data center business after inventing the GPU in 1999. The startup started producing GPU-accelerated software libraries for scientific computing, data analytics, and machine learning.
Nvidia GPUs dominate accelerated computing 20 years later. Analysts say the business has 98% market dominance in data center GPUs, 95% in desktop graphics processors, and Over 80% in AI chips. The firm has also expanded into subscription software and cloud services to monetise graphics and AI.
Omniverse Cloud provides hardware, software, and services enabling 3D application development and physically realistic simulation to train machine-learning models for autonomous robots and autos. DGX Cloud supports AI application development in retail, customer service, logistics, and healthcare with hardware, software, and services. Nvidia now offers high-performance networking and CPUs for data centers. Nvidia's offerings cover infrastructure, software, and services, making it a full-stack accelerated computing firm.
That full-stack strategy gives the firm a huge competitive edge, says CFRA analyst Angelo Zino. It minimizes friction for potential consumers and generates new monetization options for existing clients. Nvidia is now the motor of the AI revolution, and its innovation should keep it at the forefront of AI computing for years to come.
As companies invest in AI, Nvidia benefits. Argus analyst Jim Kelleher commented, "Nvidia stands out, in our view, not only because it participates in so many parts of the dynamic AI economy, but because it has synthesized its offerings into a first-of-its-kind AI-as-a-service delivered through the cloud."
Considering that, the graphics processor market is expected to expand 28% yearly through 2030, while AI investment is expected to grow 37%. That puts Nvidia on track for 30% annual revenue growth over the decade, which should translate into comparable (or faster) earnings growth.
In fact, Wall Street expects the business to boost EPS by 35% yearly for five years. Its 66 times earnings value seems reasonable given that consensus expectation. Compared to Amazon and Microsoft, Nvidia is cheaper. The company's PEG ratio is 1.9, compared to Amazon and Microsoft's 2.5.
How swiftly Nvidia grows earnings in the future will matter. If it falls behind consensus, its share price will plunge. If they can handle the risk, investors should take a modest position in Nvidia stock today, especially as part of an AI basket.
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