Semiconductors are a fascinating technology. They are the engine behind every electronic device, and over the last 50 years, advancements in the semiconductor space have helped give rise to personal computers, smartphones, video game consoles, and cloud services, as well as applications like artificial intelligence, big data analytics, robotics, and virtual and augmented reality.
Those innovations have already changed the world and going forward, semiconductors will continue to shape the future of technology. With that in mind, if I had to choose just one semiconductor stock to buy and hold forever, I would invest in Nvidia (NVDA 3.34%) without hesitation.
Here's why.
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The gold standard in graphics and artificial intelligence
Nvidia's business spans four end markets: gaming, professional visualization, data centers, and automotive. Its core innovation is the graphics processing unit (GPU), a chip designed to accelerate computationally intense workloads. Those chips, supercharged by its RTX platform -- a suite of visual computing tools that render ultra-realistic graphics in real-time -- have made Nvidia the gold standard among 3D designers, filmmakers, and gamers. In fact, the company captured 81% market share in discrete GPUs for PCs in the fourth quarter.
Similarly, Nvidia's technology has seen widespread adoption in data centers, where its GPUs and high-performance networking solutions accelerate complex tasks like data analytics, scientific computing, and artificial intelligence (AI). In fact, the company holds over 90% market share in the supercomputer accelerator industry and its technology powers over 70% of the top 500 supercomputers in the world.
Nvidia supplements its hardware with several software-as-a-service (SaaS) products. For instance, AI Enterprise is a suite of data analytics and AI software, including tools to train, optimize, and run inference on AI models. The company also provides frameworks that simplify the development of AI-powered applications, such as Isaac for robotics software, Drive for autonomous vehicle systems, and Clara for accelerated drug discovery and genomics.
More recently, Nvidia introduced the Omniverse platform, which comprises a growing number of 3D design and simulation applications. Omniverse Create allows designers and artists to build photorealistic virtual worlds, and Omniverse Avatar allows developers to build AI-powered digital humans. Both of those applications are particularly relevant to the metaverse, an evolving concept that promises to blend social interaction, commerce, and entertainment in a shared network of virtual worlds. Omniverse also functions as a simulation engine capable of generating synthetic data, helping engineers train AI models that power autonomous machines and self-driving cars.
In short, the Nvidia brand is synonymous with high-performance computing, and its technology has become the gold standard in graphics and AI. That has translated into strong financial results in recent years.
|
Metric |
2019 |
2022 |
CAGR |
|---|---|---|---|
|
Revenue |
$11.7 billion |
$26.9 billion |
32% |
|
Free cash flow |
$3.1 billion |
$8.1 billion |
37% |
Data source: YCharts. CAGR = compound annual growth rate. Note: Fiscal 2022 ended Jan. 30, 2022.
The future looks even brighter
Nvidia recently hosted its biannual GPU Technology Conference (GTC), where it introduced an array of groundbreaking products and technologies. That includes its latest GPU architecture, Hopper, which boosts supercomputing performance by an order of magnitude compared to the previous Ampere architecture. To put that in perspective, it would take just 20 Nvidia H100 GPUs to sustain the entire world's internet traffic.
During the GTC event, Nvidia also teased the Grace CPU (central processing unit). Whereas GPUs specialize in accelerating compute-intensive workloads, CPUs are better at orchestrating a wide variety of tasks. In other words, CPUs run applications and GPUs accelerate them. Nvidia believes its Grace CPU -- set to launch in early 2023 -- offers better performance and twice the energy efficiency of the best server CPU on the market today. Better yet, the addition of a CPU to Nvidia's portfolio extends its opportunity in the data center.
On that note, management puts its addressable market at $1 trillion, a figure that includes $100 billion for gaming, $300 billion for data center chips and systems, $300 billion for enterprise software and the Omniverse platform, and $300 billion for autonomous vehicles. And in light of Nvidia's ironclad competitive position, this disruptive growth stock looks like a smart long-term investment. In fact, Nvidia is one of the largest positions in my own portfolio, and I have no intention of changing that.
