The artificial intelligence (AI) market exploded last year and has shown no signs of slowing. The launch of OpenAI's ChatGPT reinvigorated interest in AI and caused countless tech companies to restructure their businesses with an emphasis on the budding industry.
Increased demand for AI services boosted graphics processing unit (GPU) sales accordingly, as the chips are crucial for training AI models. As a leading chipmaker, Nvidia (NVDA 2.69%) has massively profited from increased demand for GPUs, getting a head start in the industry and snapping up a majority market share in AI chips in 2023.
The chipmaker's earnings skyrocketed over the last year, with its stock delivering triple-digit growth since last February. Meanwhile, GPU demand looks unlikely to dissipate any time soon, as the AI market is projected to expand at a compound annual growth rate of 37% until at least 2030. Consequently, Nvidia remains one of the best ways to invest in the high-growth sector.
So, here is one AI stock that has created millionaires and will likely continue to make more.
Nvidia has enjoyed stellar growth over the last year
Nvidia dominated the GPU market for years, significantly ahead of rivals Advanced Micro Devices and Intel. The company's supremacy in the industry positioned it to immediately begin supplying its hardware to countless AI-minded companies right at the start of the AI boom last year.
As a result, Nvidia's stock is up 240% year over year, which has come alongside soaring earnings. In its most recent quarter (the fourth quarter of 2024 ended in January), the company's revenue increased by 265% year over year to $22 billion. Meanwhile, operating income jumped 983% to nearly $14 billion. The monster growth was primarily thanks to a 409% increase in data-center revenue, reflecting a spike in AI GPU sales.
In addition to soaring earnings, Nvidia's free cash flow is up 430% in the last year to more than $27 billion, significantly higher than AMD's $1 billion and Intel's negative $14 billion.
So, despite new GPU releases from both competitors, Nvidia's head start in AI potentially pushed it further ahead with greater cash reserves to continue investing in its technology and retain its market supremacy.
Its dominance in AI has staying power
Nvidia achieved an estimated 80% to 95% market share in AI GPUs last year. The company's massive success in the industry motivated several tech companies to venture in as well. In 2024, AMD and Intel began shipping new AI GPUs designed to challenge Nvidia's offerings. However, chip-market trends indicate Nvidia's supremacy will be difficult for challengers to overcome.
Despite AMD and Intel's presence in the sector, Nvidia has held an over-80% market share in desktop GPUs for years. Intel only entered the industry last year, while AMD's history in desktop GPUs spans decades. Still, AMD's GPUs only account for about 10% of the market.
NASDAQ: NVDA
Key Data Points
A similar situation occurred in the central processing unit (CPU) industry. Intel was king of CPUs for years, with an 82% market share at the start of 2017 when AMD landed on the scene with its Ryzen line of CPUs.
AMD managed to steal a significant share from Intel. However, Intel is still responsible for most of the CPU market, with its share above 60% and AMD's at 36%.
Using the CPU market as a base of comparison, Nvidia could lose some AI GPU share to its competitors over the next year. However, it is unlikely to lose its leading position, allowing it to see major gains from AI for years.
Trading at its best value in 12 months
Data by YCharts.
Nvidia's price-to-free cash flow (P/FCF) and price-to-earnings (P/E) ratios plunged in the last year (as seen in the chart above), indicating its stock is at one of its best-valued positions in 12 months.
P/E is calculated by dividing a company's stock price by its earnings per share. Meanwhile, the P/FCF ratio divides its market cap by free cash flow. These are helpful valuation metrics as they take into account a company's financial health. For both, the lower the figure, the better the value. Nvidia's declining figures could make now the best time to consider adding its stock to your portfolio.
Along with a powerful position in AI and stellar financial growth, Nvidia is on a path to continue making millionaires, and you won't want to miss out.
