Nvidia (NVDA 6.18%) is no stranger to technology investors, and with the semiconductor's stock up 193% year to date, lots of investors are giving Nvidia stock even more attention than before.
The company's graphics processors have long been used to create stunning gaming graphics and help computers process visual data, but Nvidia is far more than just a gaming microchip company these days -- it's a dominant force in two massive tech markets.
Let's take a look at three things smart investors know about the chipmaker.
Image source: Getty Images.
1. Nvidia is tapping into a massive AI market
Let's start with the most compelling reason savvy investors are turning their attention to Nvidia right now: artificial intelligence (AI).
The company's GPUs are one of the most sought-after pieces of hardware for AI processing right now. To process AI tools like large language models (LLMs), including the popular ChatGPT, companies need very powerful GPUs -- and Nvidia makes some of the best.
Nvidia's A100 chip is one of the most important AI chips out there, and companies lean heavily on this semiconductor and other Nvidia products to power their AI systems. According to New Street Research, Nvidia holds 95% of the graphics processor market for AI machine learning.
Savvy investors understand that AI is much more than just a buzzy tech trend. The artificial intelligence chip market is expected to grow from $28 billion this year to an estimated $165 billion by 2030. Competitors are trying to catch Nvidia, but the company's early AI dominance will be hard to overcome.
2. Nvidia's chips keep the cloud up and running
Another important aspect of Nvidia's business is the company's large and growing segment of selling chips for data centers. Companies of all sizes rely on powerful off-site data centers to process everything from data storage to video streaming, and Nvidia is benefiting.
Like with AI, companies rely on powerful chips to run their cloud computing data centers, and the leading providers -- Amazon, Microsoft, and Alphabet's Google -- turn to Nvidia for much of their needs. The company's chips are so popular that research firm IDC estimated that Nvidia had 91% of the enterprise GPU market last year.
Nvidia's business benefited immensely from this market, with data center revenue spiking 141% year over year in the fiscal second quarter to $10.3 billion.
Companies aren't finished adding more cloud computing services, which means Nvidia could still experience more growth in this segment. Research firm Gartner estimates that the shift to cloud services will create a $724.4 billion market in 2024, up from $490.9 billion last year.
3. Nvidia's stock trades at a premium
Nvidia's share price has soared 642% over the past five years, and its stock now trades at a price-to-earnings ratio of 103. That's a hefty premium for investors to pay, and I completely understand why it would scare some people away.
But the fact that the company's stock price isn't cheap doesn't mean that Nvidia's share price can't go higher. With growth in the cloud computing market still strong and Nvidia just beginning to tap into the long-term potential of AI, the company is well positioned to benefit in the coming years.
The company has already proven that it can move into new markets -- including cloud computing and AI -- and its ongoing chip innovations indicate it has no plans for slowing down anytime soon.
