Nvidia (NVDA 6.18%) excels at identifying technological trends -- and then building the chips that power them. From video games to cloud computing, cryptocurrency to the metaverse, robotics to autonomous vehicles, the semiconductor leader has played a leading role in fueling the expansion of multiple industries while delivering staggering returns to its shareholders along the way.
Today, another megatrend is just getting started -- one that could be larger and more lucrative for Nvidia than any before it. Artificial intelligence (AI) is beginning to reshape huge swaths of the global economy, and Nvidia's chips are helping to make the game-changing technology a reality for businesses across the world.
Here are three more reasons the chip giant's stock is still a great buy today.
1. Nvidia has an enormous AI-fueled growth opportunity in the cloud
CEO Jensen Huang believes roughly $1 trillion worth of data center infrastructure will need to be upgraded to support the growing need for generative AI and accelerated computing in the coming years. These cloud computers will be largely powered by high-performance graphics processing units (GPUs) and other advanced chips, and Nvidia intends to supply the lion's share of them.
"We're seeing incredible orders to retool the world's data centers," Huang said during the company's first-quarter earnings call in May. "And so, I think you're starting -- you're seeing the beginning of, call it, a 10-year transition to basically recycle or reclaim the world's data centers and build it out as accelerated computing."
Huang knows that demand for AI hardware will be broad. None of the major cloud computing providers -- including Amazon, Microsoft, and Alphabet -- will risk falling behind in the generative AI race. They thus have little choice but to pay up for the best chips. Meanwhile, tech giants like Salesforce, Meta Platforms, and Adobe are working to integrate AI into their products and services. And a whole host of AI start-ups are striving to create the next killer app.
Perhaps the biggest driver of semiconductor demand will be from corporations seeking to deploy AI to harvest efficiencies and boost profits. Businesses of all sizes could be forced to adopt the cutting-edge technology or risk falling behind their competitors.
All these trends are likely to drive Nvidia's data-center-related revenue and profits sharply higher in the years ahead.
2. AI could turbocharge Nvidia's gaming business
Artificial intelligence also has intriguing applications in the nearly $200 billion video game industry. The technology can be used to create hyperrealistic gaming simulations.
Nvidia's new chips and graphics cards enable deep learning super sampling, or DLSS. Essentially, DLSS provides a powerful, AI-driven performance boost to deliver high-resolution frames faster than is otherwise possible.
DLSS is already available for more than 200 games and apps, including some of the industry's biggest hits. More game publishers are likely to adopt the technology as Nvidia continues to iterate and improve upon it.
In turn, DLSS and other advanced technologies could provide a boost to Nvidia's gaming business. That's significant, as Nvidia generated $2.2 billion in gaming sales in the first quarter alone, which accounted for over 30% of its overall revenue.
3. Partnerships should further fuel Nvidia's growth
Nvidia has done an admirable job of partnering with other leading tech providers to bolster its value proposition to its customers.
As just one recent example, Nvidia announced on Monday an AI collaboration with cloud data specialist Snowflake (SNOW 3.69%). The two companies will work together to help their clients build custom AI applications.
Businesses will now be able to use Nvidia's tech to train specialized AI models with their own proprietary data while keeping this sensitive information securely within Snowflake's data cloud platform. Doing so should also reduce the cost and time required to fine-tune these models.
By reducing the expense, complexity, and risks of building AI apps, Nvidia and its partners stand to profit handsomely as more companies seek to harness the power of artificial intelligence.
