Nvidia (NASDAQ: NVDA) stock has rocketed higher, climbing 2,600% over five years, as the company took the world of artificial intelligence (AI) by storm. This tech player holds 80% of the AI chip market and has expanded into a wide variety of AI products and services to serve just about every need of a customer building an AI platform.
All of this has translated into outsized earnings, with revenue and profit soaring in the triple digits in recent quarters. This is fantastic, but it’s also prompted investors to pose the inevitable question: Is Nvidia still a buy — or have the biggest gains already happened? After all, rivals have revved up their competitive engines, producing better and better AI chips selling for lower prices than those of Nvidia.
Nvidia chief executive officer Jensen Huang pronounced one word recently that could help us answer our question. Let’s check it out.
Image source: Getty Images.
Nvidia’s success story
First, though, before we get to Huang’s comments, let’s begin with a quick refresher on how Nvidia got to this point. The company, after all, was most known for serving gamers just a few short years ago. And this key role in the gaming industry, with its graphics processing units (GPUs) powering this form of entertainment, is how Nvidia got its start in the high-growth area of AI.
GPUs process many tasks simultaneously, and this prompted Nvidia to consider other uses for the chip. The company even created the parallel computing platform CUDA to make this transition happen. And then came the AI boom, and it was clear that the GPU could play a major role in developing this technology. Nvidia’s GPUs — even considering the latest models of rivals — are the fastest on the market, meaning customers can save time and money by using them over the long term.
So, more and more AI customers gave Nvidia a try, and these days powerhouses from Meta Platforms to Amazon have flocked to the company. Oracle co-founder Larry Ellison even said recently that he and Tesla chief Elon Musk actually “begged” Huang for more GPUs.
And now is the perfect moment to consider the recent word from Huang that could help you make an investment decision. Demand for the company’s new Blackwell AI chip is “insane,” he told CNBC in a recent interview. Nvidia is preparing to launch the platform later this year.
Then Huang went on to say: “Everybody wants to have the most, and everybody wants to be first.”
Demand surpassing supply
This corroborates Nvidia’s comments during itsearnings callback in August, when the company said demand for the new Blackwell architecture and chip surpassed supply — and Nvidia indicated this was likely to continue well into next year.
So, now let’s consider our question: Does this “insane” level of demand make Nvidia a buy? Well, it does address one big risk Nvidia faces, and that’s the threat of competition. In spite of Blackwell’s high price tag — ranging from $30,000 to $40,000 per unit — customers literally are begging for more if we use the Ellison story as an example. Huang’s comment shows that, even though rivals like Intel and Advanced Micro Devices offer less expensive high-performance chips, this isn’t luring away Nvidia customers. They still are willing to pay more to access the world’s leading product.
This is a reason to be very optimistic about Nvidia’s prospects in the coming year. But what about beyond that point? Nvidia has promised to update its GPUs on an annual basis, and this focus on innovation means it’s likely to stay ahead. If customers are happy with the new Blackwell chip, they probably will want to stay on board for even better performing GPUs from Nvidia down the road. And Nvidia’s strategy of offering complete systems, from enterprise software to networking, make it easy for a customer get an AI project going.
Today, Nvidia shares trade for 44x times forward earnings estimates. This isn’t dirt cheap, but it’s a reasonable price for a company with such a strong market position — and in a high-growth market. So, all of this means that Huang’s one word — and many other positive elements — make Nvidia stock a buy today. Even after its jaw-dropping gains in recent years, the stock still could have much farther to go over time.
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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. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adria Cimino has positions in Amazon, Oracle, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Meta Platforms, Nvidia, Oracle, and Tesla. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.