It’s no secret that artificial intelligence (AI) stocks have dominated the market in recent years. Companies like PwC, one of the “big four” accounting firms, are pushing the hype as they claim AI could add $15.7 trillion to the global economy by 2030. Of course.
Nvidia, a symbol of revolution (NASDAQ:NVDA)has seen its stock price soar almost 1000% from late 2022 to today, but the past few months haven’t been so calm. Nvidia’s stock price has fallen about 10% since hitting an all-time high in June. For some, the mix of deeper market concerns and slower growth is dampening once-red hot stocks. So where do we go from here?
Nvidia’s AI Summit is a big day for the company and the industry
As the de facto leader of the entire industry, Nvidia really needs to continue leading. The 2024 AI Summit, which begins on October 7, is an opportunity for the company to bring together industry heavyweights and top talent to help advance AI while putting the company front and center. This is an opportunity to communicate NVIDIA’s vision to other industry leaders as well as the general public.
One of the main questions investors have about the company, and this is a very natural question, is: “Are the real-world applications of AI that impactful?” . Is the incredible cost of AI hardware worth the investment? This summit is an opportunity for Nvidia to showcase the myriad ways AI can be used to create real value. It’s an opportunity to justify the chip’s hefty cost, and ultimately its stock price.
While this event itself is unlikely to change the situation, it may ease fears and prompt investors to think about the potential and power of AI. Fortunately, this event is not occurring in a vacuum. Here are some reasons why Nvidia is in a great position to make the most of this event.
1. Introducing Nvidia’s Blackwell chips
The only major uproar for NVIDIA since the AI boom began was when the company announced delays for its latest line of chips, called Blackwell. Due to manufacturing issues, it did not ship on time. Nvidia assured that shipments would be delayed for only one quarter. Despite this reassurance, some investors feared the problem was more fundamental and the delays would be even longer.
It appears that those concerns were unfounded. Recent reports from Tom’s Hardware say the company will be ready to ship the first batch as early as December, just about six weeks later than originally planned, but these reports were confirmed by Nvidia. Not confirmed. If true, it would go a long way toward allaying investor concerns and showing that the company has gone above and beyond to right its mistakes.
Still, the rollout would be huge for the company anyway, even if it doesn’t ship until late in the quarter. The impact will be immediate, with billions of dollars in sales expected by the end of the fourth quarter.
2. Nvidia’s vision is its greatest asset
It’s easy to get caught up in numbers and fixate on balance sheets and income statements. While these are very important when evaluating a business, it is often certain intangible things, such as vision, that make a company great. Nvidia has that in spades. Under CEO Jensen Huang’s leadership, the company has been at the forefront of several macro movements in the technology industry. In the early ’90s, Huang thought computer graphics was going to be huge. The company’s GPUs (graphics processing units) are a big part of what has allowed the video game industry to evolve to where it is today.
This vision is why the company controls about 90% of the AI chip market today. Nvidia realized that its GPUs could do more than just push the boundaries of computer graphics. They can spark new technological revolutions. This is why the company sensed that its competitors were falling asleep. Since the current AI boom began in late 2022, Nvidia’s chips have consistently been miles ahead. Since then, other chipmakers have been playing catch-up.
There has been a relationship of relative parity between Nvidia and longtime rival AMD for decades. Not so anymore. Last year, Nvidia made more profit than AMD’s total revenue. The difference right now is obvious, but if NVIDIA is making much more money than its competitors, it can afford to spend more on research and marketing to expand its outer moat and fend off its competitors. Please remember.
3. NVIDIA’s price is affordable considering its future prospects
I told you not to get caught up in numbers, but numbers still matter. How does the market currently value Nvidia? Nvidia’s price-to-earnings (P/E) ratio of 56x is not cheap, but given its current growth pace, the company is trading at a lower price-to-earnings ratio. It is not the best indicator for The company’s forward P/E, which takes into account expected earnings over the next 12 months rather than the past 12 months, is just over 30 times. This is not bad in the world of technology. That’s exactly where Apple and Amazon are.
Another useful valuation method is the PEG ratio. This is obtained by dividing a company’s P/E ratio by its expected earnings growth rate. This is a great indicator for a company with significant growth potential. As a very general rule, a PEG of less than 1 is what you’re looking for. Nvidia is 0.94.
Nvidia has plenty of room to grow to justify its current valuation. To be sure, metrics aren’t everything. These are imperfect instruments, and of course indicators that rely on expected returns are especially imperfect and the future is never guaranteed. I believe NVIDIA will continue to outperform the market for some time.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Johnny Rice has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy.
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