Over the past three years, NVIDIA Corporation's (NASDAQ:NVDA) share price has skyrocketed more than 870%, in part, because of the company's numerous growth opportunities for selling its graphics processors into the artificial intelligence (AI) market.
AI, in particular, offers a lot of potential upside for the company not only because the artificial intelligence market is still in the early stages of growth, but also because NVIDIA is already leading in this space by selling graphics processors for AI servers and creating its CUDA computing platform. The CUDA platform allows developers to use NVIDIA's high-powered graphics cards for fast application processing on AI servers.
CUDA recently caught the attention of Evercore ISI analyst, C.J. Muse, who said that NVIDIA has created "[T]he AI standard through CUDA and the significant developer lock-in that comes along with that," and that NVIDIA is "on the cusp of a tipping point in the company becoming the AI standard platform."
So with the company's early moves in AI, and the recent comments by Muse on NVIDIA's artificial intelligence opportunity, should investors continue to bet on the company's AI potential?
Why there's optimism about NVIDIA's AI prospects
Analysts are bullish on NVIDIA's AI prospects in part because of the company's lead in AI chips and platforms. The world's leading tech companies, including Alphabet's Google, Facebook, and Amazon, use NVIDIA's graphics processing units (GPUs) for their AI data centers. Already, more than 1,200 companies use NVIDIA's hardware and software for their AI inference platforms.
Data centers are one of the company's largest long-term opportunities for its AI chips. Management believes that its total addressable market in data centers (driven by AI) will be worth $50 billion by 2023. This market is growing, in part, from the increase in machine learning chip demand, which Seyrafi thinks will rise another 57% this year, on top of its 133% growth last year.
But NVIDIA has more opportunities than just data centers. The company's Drive PX Pegasus is the latest version of its self-driving vehicle supercomputer, and it'll help launch vehicles with Level 5 autonomy (fully self-driving) over the next few years. The tech uses AI machine learning and cameras to give vehicles the ability to process the information they see around them, including cars, road signs, pedestrians, etc.
Driverless vehicles still face a lot of hurdles, but over the next two decades, there will likely be an explosion of this technology across the ride-hailing, car-sharing, and long-haul trucking industries. About 51,000 autonomous vehicles will be sold in 2021, but that figure will jump to a staggering 33 million global annual autonomous vehicle sales in 2040, according to IHS Markit.
With more than 370 companies already adopting NVIDIA's Drive PX platform, the company is positioning itself to benefit from growth in the autonomous vehicle market. In fact, management believes that its total addressable market in driverless vehicles will reach $60 billion by 2035.
Should investors be bullish, too?
With NVIDIA's AI opportunity in data centers and driverless cars just beginning, investors have good reasons to be just as optimistic about the company's potential in the AI market as many analysts are.
NVIDIA rivals Intel and Advanced Micro Devices have begun to make some inroads into the AI market, but much of the AI space is still dominated by NVIDIA's GPUs. The company's ability to implement its processors outside of the data center market (specifically, for driverless vehicles) means NVIDIA is already steps ahead of its competitors.
One thing investors should keep in mind is that much of NVIDIA's share-price gains over the past few years have come because of investor optimism in the company's AI prospects. NVIDIA's trailing price-to-earnings ratio of about 40 is higher than the tech industry average of about 33 -- which means investors jumping on NVIDIA's shares right now are paying a slight premium for the stock. That doesn't mean NVIDIA's shares are finished with their run yet, but keep in mind that much of the company's AI upside is already baked into its past share-price gains.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Facebook, and Nvidia. The Motley Fool has a disclosure policy.