If you had to narrow it down to just one company that defined the stock market's performance in 2023, it would be hard to come up with a better pick than Nvidia (NVDA 6.18%). The company's graphics processing unit (GPU) hardware was at the center of this year's incredible leaps forward for artificial intelligence (AI) technologies.
It powered popular services from OpenAI including ChatGPT, paved the way for Microsoft to make big plays in the space, and made a wide range of other high-performance applications possible.
The demand for Nvidia's tech also powered explosive gains for the company's stock. The processing specialist's share price has skyrocketed roughly 220% year to date -- a performance that has pushed the GPU leader's market capitalization to roughly $1.15 trillion and delivered huge returns for investors.
But as striking as the rise of AI has been in 2023, the incredible technology is still very much in its infancy. Speaking at The New York Times’ annual DealBook Summit recently, Nvidia CEO Jensen Huang stated that AI technologies will be "fairly competitive" with humans within the next five years.
This prognostication is big news for AI investors and suggests that massive leaps forward will continue to take place in relatively short order. What would this mean for Nvidia stock?
Nvidia is at the heart of the AI revolution
Nvidia's graphics processing units were originally designed to power visuals for high-end computer games and visual applications. However, the company eventually found that its GPUs were also well suited for other intensive computing processes and could be used as foundational hardware for cloud data centers. In turn, advanced GPUs have also become the key hardware ingredient for running computationally intensive AI applications.
As impressive as ChatGPT and other AI apps already are, Huang's recent comments that artificial intelligence systems could match human capabilities within the next five years point to incredible progress on the near horizon. If he's even close to correct, the executive's forecast also points to an incredible demand outlook for the company's GPU hardware and accelerated-computing services.
Nvidia stock still has room for incredible performance
Despite its explosive gains over the last year, Nvidia stock could still have room for huge gains over the long term. The company has delivered unprecedented performance beats with its quarterly reports -- blowing by both its own guidance and those issued by analysts.
For reference, Nvidia posted non-GAAP (adjusted) earnings per share of $2.70 on sales of $13.51 billion in the second quarter. Meanwhile, the average analyst estimate had called for per-share earnings of $2.09 on revenue of $11.22 billion in the period.
Even with signs of incredible momentum in Q2, Nvidia once again crushed Wall Street's expectations in the third quarter. The AI luminary recorded adjusted per-share earnings of $4.02 on revenue of $18.12 billion, trouncing the average analyst estimate's call for per-share earnings of $3.37 on revenue of $16.18 billion.
For the current quarter, Nvidia is guiding for sales of approximately $20 billion, suggesting growth of 231% year over year. Meanwhile, the company's midpoint target calls for a gross margin of 75% in the period, ticking up from the already impressive 74% margin it posted in this year's second quarter.
Huang's comments hint at the possibility that Nvidia will once again crush expectations when it delivers its next earnings report. More importantly, the CEO's five-year forecast seems to foreshadow technological shifts that will radically change how the world operates.
Nvidia currently controls roughly 90% of the market for high-end GPUs used to power AI and other accelerated computing applications. As might be inferred from such a dominant market share, the company's tech is delivering substantial performance advantages compared to competing offerings.
If AI continues to make huge leaps forward at such a brisk pace, the passage of time could show that Nvidia's already red-hot stock was actually quite cheap at today's prices.
