As the leading manufacturer of artificial intelligence chips, nvidia (NVDA) is the poster child of the AI stock boom. This year, Nvidia stock is up more than 230% thanks to a constant pulse of AI technology news, partnerships and customer announcements.
Nvidia has reported two consecutive quarters of explosive growth in its data center business. Cloud service providers and other organizations are investing heavily in computing infrastructure to support generative AI. Moreover, there is an emphasis on Nvidia processors.
But Nvidia shares failed to get a major boost after releasing its second-quarter financial results and forecast on Aug. 23. Investors are now discussing Nvidia’s valuation after the company’s value tripled this year.
However, Daniel Ives, an analyst at Wedbush Securities, said the AI boom looks more like the Internet boom of around 1995 than the dot-com bubble, which burst in the early 2000s.
“Investors now understand very clearly that the AI demand story is as real as any technology trend we have seen in the past 30 years, and can only be compared to the Internet in 1995 and apple‘s (CameliPhone launch in 2007,” Ive said in a recent note to customers.
Nvidia shares are undervalued, management notes
As an enabler of AI applications, Ives said, Nvidia is part of the initial wave of AI-related growth.
Cloud service providers such as Microsoft (MSFT), inspiration (ORCL) And Sales force (Customer relationship managementHe said AI-led growth should be seen as part of the next wave in the next 12 to 18 months.
Wedbush has rated Nvidia stock as an outperformer with a price target of 600. Meanwhile, shares are now approaching 500.
Company executives signaled their belief that the company is undervalued when they recently announced a $25 billion share buyback plan. Share repurchases are open without an expiration date.
For the quarter ended July 30, Nvidia reported adjusted earnings of $2.70 per share on sales of $13.51 billion. Analysts had expected earnings of $2.08 per share on sales of $11.19 billion. On a year over year basis, Nvidia’s profits are up 429% while sales are up 101%.
For the current quarter, Nvidia expected sales to rise 170% to $16 billion. Wall Street was looking for fiscal revenue for the third quarter of $12.59 billion.
On a conference call with analysts, Nvidia CEO Jensen Huang said data centers around the world are shifting to accelerated computing from general-purpose computing to support generative AI.
A trillion dollar market opportunity for Nvidia stock
“The world has about $1 trillion worth of data centers installed in the cloud and enterprises,” Huang said. “Trillion dollar data centers are in the process of transitioning to accelerated computing and generative AI.”
Generative AI can create content—including written articles, images, videos, and music—from simple descriptive phrases. He can also write computer programming code. Artificial intelligence systems analyze and ingest huge amounts of data to create new business.
Huang estimated that data center operators will spend $250 billion annually on new capital equipment. Moreover, their operations will be modernized to support AI computing.
CFO Colette Kress said on the company’s earnings call that seeing demand at Nvidia extend into next year and its supply continues to improve.
Not just potato chips, but an entire AI enchilada
What makes Nvidia a clear leader in AI technology is the fact that it has built an entire AI ecosystem, Harlan Sur, an analyst at JPMorgan, said in a recent note to clients.
Nvidia “positions itself as a complete solutions provider with its portfolio of compute, networking, software, managed cloud services, hardware systems, and a complete ecosystem for training and deploying complex models,” Sohr said. It rates Nvidia stock as overweight, also with a price target of 600.
Nvidia’s GPUs currently own the market, says Raj Joshi, an analyst with Moody’s Investors Service.
“There’s no meaningful competition for Nvidia’s high-performance GPUs even AMD (AMD“I started shipping new AI accelerators in bulk in early 2024,” Joshi said in a note.
Nvidia stock investors underestimate the company’s leadership
Jefferies analyst Marc Lipassis says Nvidia has “the de facto AI ecosystem benchmark”.
“Many investors continue to underestimate the amount of investment Nvidia has made in its ecosystem, and the lead the company has given in the market,” Lipasis said in a note. He also said that software developers and system builders have embraced Nvidia’s AI platform, creating a virtuous circle of growth.
Nvidia will be the dominant supplier of GPUs for artificial intelligence in the next three to five years, Gene Munster, managing partner of Deepwater Asset Management, predicted in a report. blog post. Moreover, Nvidia is likely to “turn the table” on switching to GPUs from CPUs in data centers until at least 2025.
He said the company’s advantage includes software developers who use its CUDA platform. Munster said CUDA created “a moat around Nvidia’s chip business.” It will also be difficult to convince developers to switch to a different platform, he says.
The CEO explains the main advantages
Nvidia CEO Huang outlined the company’s advantages in the AI market on a recent earnings call.
“The new age of computing has begun,” he said. “Nvidia has been preparing for this for more than two decades and has created a new computing platform on which global industries can build.”
He said NVIDIA also has the technology infrastructure, proven base and reach to drive change in the computing industry.
“It’s an exciting time for Nvidia, our customers and partners, and the entire ecosystem that will drive this generational shift in computing,” Huang said.
Follow Patrick Seitz on Twitter at @IBD_PSeitz For more stories on consumer technology, software and semiconductor stocks.
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