The past few years have seen an unprecedented expansion of artificial intelligence (AI) into many aspects of life. Capitalizing on this expansion, companies in this space are undoubtedly at the forefront of the next big thing in AI applications.
Among all major players, Nvidia (NVDA -2.25%) is clearly a company to watch, having grown an impressive 2,300% over the past five years (as of this writing), cementing its place as one of the hottest growth stories in technology. did. Importantly, investors are looking to capitalize on the company’s success as it rides the AI wave with chips for data centers and graphics.
The stock’s 199% return in one year reflects the company’s continued relevance in the artificial intelligence space, driven by explosive demand for graphics processing units (GPUs) that help power AI models. This is proof. They are now essential to industries ranging from cloud computing to finance to healthcare. As companies rush to integrate AI into their operations, Nvidia products are in high demand and the company has established itself as a leading supplier of the graphics side of infrastructure.
But with the company’s stock currently trading near all-time highs and at a significant premium, the question is: Will NVIDIA stock’s rally end for a while, or does it still have plenty of room to climb? I mean, is it?
Demand and supply equation
As Fool writer Adria Cimino pointed out, Nvidia has 80% of the market share for its products. It’s a pretty comfortable place.
Nvidia graphics cards are the backbone of many AI systems, and as the demand for AI technology skyrockets, the need for these graphics cards will grow even more. Digitaltrends.com warns that there may be a GPU shortage, especially for gamers. This imbalance in supply and demand creates a unique opportunity for Nvidia. As long as demand for AI and machine learning chips continues to grow and supply remains constrained, this stock should remain strong. This is clearly evidenced by how quickly Nvidia’s revenue grew in fiscal year 2024 compared to fiscal year 2023. Enterprises need GPUs.
Financial situation continues to impress
The company’s latest stats are what you dream of as a growth stock. On a GAAP basis, Nvidia’s most recent quarter revenue increased 94% year-over-year to $35.08 billion. Nvidia’s earnings also increased 111% year-over-year to $0.78 per diluted share, or about $19.3 billion.
I tend to focus on earnings, which makes sense since it’s the foundation of long-term stock performance. In Nvidia’s case, I’m certainly still concerned about its revenue potential and overall revenue growth potential, as they align over the long term. The graph below confirms the following: Over the past five years, NVIDIA’s stock price has actually grown roughly in line with GAAP earnings per share.
NVDA data by YCharts.
But one of the big things I liked about NVIDIA’s third-quarter results was the fourth-quarter GAAP margin estimate, which the company expects to be 73%. I love this because it’s a high-margin business.
Is Nvidia’s effort complete?
Simply put? no way. To reiterate our earlier point, the unprecedented expansion of AI means it is not going anywhere.
There are many factors at play here. Nvidia’s Q3 press release reveals new developments, including the launch in Denmark of a supercomputer powered by over 1,500 Nvidia GPUs, and the introduction of an AI aviation platform that has already started working with T-Mobile. You can see announcements in growing fields. , Ericsson and Nokia, as well as the new Volvo SUV and more, use Nvidia computing. This is just a small sampling of the very extensive list of areas in which Nvidia’s resources are allocated.
Looking ahead, Wall Street analysts expect Nvidia to end fiscal 2025 at $2.95 per share. If this is done, the expected P/E ratio for FY2025 profits will be 47.2 times. Now, when you consider something like Tesla at almost 100 times earnings, or Cava stock, which I love, trading at over 300 times earnings, NVIDIA stock has a premium of 47 times earnings. doesn’t seem to be that extreme. Long-term potential and current advantages within that space.
This is a company that isn’t done yet. In fact, Nvidia’s best years are very likely to occur in the future. My recommendation is not to be afraid to buy at current levels.
David Butler has no position in any stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool recommends Cava Group and T-Mobile US. The Motley Fool has a disclosure policy.
