It is difficult to overestimate the impact artificial intelligence (AI) will have on the world in the coming years. While AI has been around in one form or another for decades, the latest developments have the potential to move the needle in ways we can't yet imagine.
Generative AI has demonstrated the ability to create original text, images and audio, but its potential goes far beyond that. When properly trained, these systems can summarize and compose emails, create presentations, search and compile data, and even compose and debug complex computer code.
Goldman Sachs Research has crunched the numbers and the estimate is staggering. As AI makes its way into enterprise systems and society at large, it could be worth as much as $7 trillion over the next decade.
While there will undoubtedly be many beneficiaries, there is one company well positioned to reap its share of this AI windfall: Nvidia (NASDAQ: NVDA).
A prescient twist
To understand how the company got to where it is today, it's important to take a step back. Nvidia originally made its fortune by pioneering graphics processing units (GPUs) that created lifelike visuals in video games, revolutionizing the industry.
The underlying technology that made this possible is parallel processing, which can process a large number of mathematical calculations simultaneously by breaking large tasks into smaller, more manageable bits. Nvidia began to see the potential and quickly adapted this process for other applications.
The humble GPU has evolved far beyond video games. It now accelerates data over the air, processes information in data centers and cloud computing, and enables the latest advances in AI.
Nvidia's market opportunity is growing by leaps and bounds and increasing with each new use case. Early last year, management estimated the company's total addressable market at around $1 trillion – and that was before generative AI adoption really kicked into high gear. This suggests the number is now even higher.
The need for data centers that can harness the power of AI has led to a construction boom that is just beginning. Bernstein analyst Toni Sacconaghi suggests the AI server market will grow 75% annually over the next three years, calling the expansion “unprecedented.”
This robust demand is clearly visible in Nvidia's results. In fiscal 2024, revenue rose 126% year over year to $61 billion, while diluted earnings per share (EPS) of $11.93 marked a 586% increase. Nvidia's data center segment, which includes chips used for cloud computing and AI, was the star of the show, generating record revenue of $18.4 billion, up 409%.
For the first quarter of 2025, ending April 30, Nvidia forecasts record revenue of $24 billion, up 234% year over year. Management was clear that it was the rapid expansion of generative AI that was driving the growth.
Last month, Nvidia unveiled its latest AI workhorse: the Grace Blackwell GB200, calling it the “world's most powerful chip” for AI. It offers five times the performance of the H100 and further strengthens Nvidia's technological lead in this area.
Since Nvidia's technology is the foundation of AI processing, the company is driving the AI revolution.
Compete from a position of strength
One of the biggest risks the bears cite is the coming competition, but Nvidia's relentless pace of innovation has kept its rivals at bay. The company has an estimated 95% share of the data center market, according to CFRA Research analyst Angelo Zino, so Nvidia is in a strong position.
Moreover, the demand for data centers is expected to increase double by 2030, according to a report from commercial real estate consultancy Newmark Group. Estimates suggest that more than 10,000 Nvidia chips were needed to train Chat-GPT by 2022, and newer versions will require even more. This illustrates why demand for Nvidia's gold standard AI processing chips should remain high.
Nvidia is also the undisputed leader in machine learning, an earlier and established branch of AI. According to data from New Street Research, Nvidia has about 95% of the market.
Data centers are inextricably intertwined with AI technology, and Nvidia has a leading edge in both. While there's always the potential that a rival could develop a more powerful or cost-effective AI solution, Nvidia's years of experience suggest it will be difficult to dislodge.
You get what you pay for
Another issue Nvidia raises is the company's valuation. The stock is selling for 68 times earnings and 33 times sales (at the time of writing), which is likely to cause some investors to hesitate. However, the company's long track record of growth and future prospects must be taken into account. Nvidia shares are currently selling for 32 times forward earnings, only a small premium to the 27 times multiple for the S&P500 (SNPINDEX: ^GSPC).
Despite the recent pullback, Nvidia is still up almost 200% over the past year and that's no exception. The stock is up 1,600% over the past five years and 16,910% over the past ten years.
While investors shouldn't expect this level of profit over the next decade, one thing is certain: Nvidia is well positioned to benefit from the continued windfall coming from AI and represents a once-in-a-generation investment opportunity.
Should You Invest $1,000 in Nvidia Now?
Consider the following before buying shares in Nvidia:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn't one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $537,557!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns April 22, 2024
Danny Vena has positions at Nvidia. The Motley Fool holds positions in and recommends Goldman Sachs Group and Nvidia. The Motley Fool has one disclosure policy.
A once-in-a-generation investment opportunity: one artificial intelligence (AI) growth stock you can buy now and hold for 10 years was originally published by The Motley Fool
