A small number of companies seem to be at the heart of the AI universe (NVDA) 3.67%)) It’s certainly one of them. The company’s unique ability to design some of the most advanced processors for AI has boosted its status, not to mention stock prices, over the past few years.
According to a study by The Motley Fool, Nvidia’s management has been discussing the generation AI in recent revenue calls. But exactly what is Nvidia’s long-term outlook from generative AI? Here are three of the biggest opportunities.
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1. Data center spending goes through the roof
You’ve probably noticed that many tech companies have been talking about AI spending recently. Numbers are often billions of dollars, but what is most of that money spent on? Often, data center infrastructure.
The world’s largest tech companies are taking part in AI races, with almost all trying to win by pulling out their checkbooks. Nvidia designs processors that work perfectly for training advanced AI models, making profits no matter where the money comes from.
To continue developing new AI models and process all requests that are currently being made, businesses will need to upgrade their data centers to accelerate their computing power. This means that the tech giant is moving from general-purpose data centers to AI centers, according to Nvidia’s revenue call.
The opportunity here is great. Nvidia CEO Jenson Huang believes AI data center spending will reach $2 trillion in the next five years alone. Expenses have already received company compensation, with Nvidia’s data center revenue more than doubled to $30.8 billion in the third quarter (ends October 27th).
2. AI cloud computing services are on the rise
This opportunity is closely related to data center spending, but I think it’s important to distinguish between AI data center spending and AI cloud services, so I would like to split it into my own categories.
Some data center spending will go to building and training new AI models. But part of this depends on building new AI cloud services, including conversational AI, enterprise AI services, artificial intelligence agents, and video and image generation.
According to Goldman Sachs, global cloud revenues could reach $2 trillion by 2035 for AI, and as many of these AI cloud services are delivered online, they could be mounted by Nvidia processors.
3. The self-driving car market can be huge
Nvidia has developed its own technology for self-driving cars and partners with many automakers to bring hardware and software components onto the road. More recently, Uber Technologies and Nvidia have announced a new partnership that uses NVIDA’s generative AI technology to “charge the timeline of safe, scalable, autonomously driven solutions for the industry.”
This is in addition to other Nvidia partnerships, including Toyota Motor, Volvo, BYD and more. The potential for the self-driving car market is important, with Move Strategy Consulting likely to be worth $2.3 trillion by 2030, and Nvidia is already profiting. The company’s automotive segment generated $449 million in the first quarter of fiscal year 2025 (ends October 31, 2024), an increase of 72% year-on-year.
With the current growth in the automotive segment, NVIDIA gives an annual run rate of an estimated $5 billion for automotive segment sales this year. And Huang is very optimistic that there will be more opportunities. Speaking about self-driving cars at a recent CES conference, Huang said, “We expect this to become the first multi-dollar robotics industry.”
Nvidia isn’t cheap, but its AI chances remain high
Nvidia’s stock has multiples of revenue from a forward price of 32.5 compared to the forward P/E of the 24.5 S&P 500. So, if you buy stocks right now, you’re not getting Nvidia at a discounted price, but they’re priced relatively well in some inventory with much less AI stock.
Chris Neger has no position in any of the stocks mentioned. Motley Fool has joined and recommends Goldman Sachs Group, Nvidia and Uber Technologies. Motley Fool recommends Byd Company. Motley Fools have a disclosure policy.
