At least, that’s what the former CEO of Google thinks.
NVIDIA (NVDA 1.40%) The company’s shares have fallen from their highs in June as the stock market seems to be debating the future of the AI boom.
Some investors believe the stock rally is overheated because the new technology has yet to produce a “killer app” or cause major disruption to the economy. The declines in Alphabet and Microsoft shares following their recent earnings reports are evidence that investors are questioning spending levels on AI infrastructure and whether these tech giants will be able to realize a return on their investments.
But there are plenty of AI bulls out there, including former Google CEO Eric Schmidt. In a recent conversation at Stanford University, Schmidt commented on the evolution of artificial intelligence and said companies plan to spend tens or even hundreds of billions of dollars on AI infrastructure. For example, Microsoft and OpenAI are planning a massive data center and supercomputer project known as Stargate AI, which could cost as much as $100 billion.
Schmidt added, “(OpenAI CEO) Sam Altman is a good friend of mine, and he thinks this is going to cost about $300 billion, maybe more,” where “it” refers to meeting their needs for AI infrastructure.
He continued, “If all $300 billion goes to NVIDIA, the stock market will know what to do,” but added, “This is not a recommendation for the stock market.”
Still, with AI only just beginning to build, investors should be careful to keep an eye on long-term goals.
Image source: Getty Images.
$300 billion may just be the beginning
Keep in mind that Schmidt’s statement was just referring to OpenAI’s open infrastructure needs, so if correct, the industry demand is much larger than that.
In fact, Sam Altman is seeking to raise as much as $7 trillion to expand the global semiconductor industry in order to create artificial general intelligence (AGI) that is as capable as or better than humans.
AGI is a goal held by OpenAI and other tech visionaries such as Tesla’s Elon Musk, who are also working towards it. Investors should expect OpenAI to continue building the necessary computing power until AGI becomes a reality. Nvidia CEO Jensen Huang predicts that artificial general intelligence is five years away, meaning the market may see increased investment in AI in the meantime.
What it means for Nvidia
Market volatility and investor skepticism aside, the tech industry’s expectations for AI remain unchanged: The next generation of AI winners will be determined by a competition between the “Magnificent Seven” and other companies, making building the necessary infrastructure crucial.
Nvidia remains the overwhelming leader in data center GPUs and other components needed to run AI models like ChatGPT, and is likely to continue to dominate that market even as competition from AMD and Intel begins.
Nvidia is estimated to hold 98% share of the data center GPU market in 2023, with the company’s data center revenue growing 427% to $22.6 billion in the first quarter. This growth rate will slow after the initial generative AI investment boom that began after the release of ChatGPT, but Nvidia is sure to grow at a higher rate as the race to AGI intensifies.
Investors may debate the fair valuation of Nvidia shares, but it’s hard to argue with the strength and future potential of the company’s business. Based on AGI’s needs and comments from people like Schmidt and Altman, demand for the company’s products has a long way to go.
In fact, Schmidt’s biggest concern about the proliferation of AI infrastructure was finding enough electricity to power these giant data centers, and while that could be a challenge in the future, following his advice and buying Nvidia stock now makes a lot of sense.
Suzanne Frey, an executive at Alphabet, is a director of The Motley Fool. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Advanced Micro Devices, Alphabet, Microsoft, NVIDIA, and Tesla. The Motley Fool recommends Intel and recommends the following: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
