To date, the advent of artificial intelligence (AI) has put a white-hot spotlight on chipmaker Nvidia (NVDA -0.36%). And rightfully so. Its hardware is the technological heart of most of the world's AI systems, after all. The company also offers software and related solutions that keep it the go-to name in the business.
Change is inherent within the technology sector, though. Rivals are forever developing competing options. Every aspect of today's tech will eventually be obsolete, in fact, replaced by superior alternatives. So, which company is the next big name within the AI business?
Actually, it's likely to remain Nvidia for a long, long while. Interested investors may want to hold off just a bit, however, before diving into Nvidia stock.
Two things working in Nvidia's favor
Don't misread the message. Nvidia's highest-growth days are probably in the rearview mirror. Its annual revenue has more than doubled over the course of the past three years, while its stock price has more than quintupled. Both are tough acts to follow. There's a good chance frothy Nvidia shares could be giving up a big chunk of these recent gains very soon as profit-taking pressures mount.
Just don't panic if and when that happens. Rather, use any decent pullback as a buying opportunity. There are no serious threats on the AI front, and the growth of the AI market itself may still be underestimated.
Each idea merits its own closer look.
1. Nvidia offers soup-to-nuts solutions
Nvidia's continued dominance of the artificial intelligence market will be rooted in more than just its hardware.
It's often overlooked, but AI platforms require software to function as well. Some developers code their own, but Nvidia's is specifically designed to meet AI developers' specific needs by getting the very most out of Nvidia's purpose-built hardware. Its Triton software, for example, is optimized for inference -- an AI term used to describe how an AI system can come to a desired conclusion regarding new data based on what it learned from older, already-processed data.
Nvidia's other technological competitive edge lies in yet another component of AI platforms. That's the networking of many, many AI processors into what is essentially a single system. It's not easy. However, with its $7 billion acquisition of a company called Mellanox back in 2019, Nvidia is able to offer its data center customers the lightning-fast interconnectivity that makes artificial intelligence applications and calculations possible.
In AI parlance, Nvidia offers a "full stack" solution, meaning a buyer can simply tap Nvidia for their entire AI platform.
More important to investors, these two underlying technologies are both still miles ahead of the competition's. It's not a stretch to suggest that AI data center rivals like Advanced Micro Devices or Intel will never truly catch up with market-leading Nvidia.
2. Nvidia's superior AI is ready for unforeseen opportunity
Nvidia's "full stack" competitive edge is only part of the reason its stock could help make you a millionaire, however. The other component of the bullish argument is the ongoing growth of the AI market itself.
The outlooks vary from one source to the next. But, most expectations of the AI chip market are in line with those from Precedence Research. The market research outfit says the yearly AI chip market alone is poised to expand at an annualized pace of nearly 30% through 2032 when it will be worth more than $200 billion annually.
And that's just the hardware sliver of the market. Precedence adds that the AI software market is likely to swell from last year's $170 billion to over $1 trillion by 2032. That's a compound annualized growth rate of 23%, also working in Nvidia's favor by playing into a strong hand it's holding.
This anticipated growth, however, may still understate what's waiting just beyond the horizon.
While most people have a rudimentary understanding of the kinds of things AI might be able to do, it's arguable that its potential remains underestimated. Take the development of new drugs, for example. Once limited to theoretical possibilities, mainstream health-tech companies are starting to seriously tinker with the idea.
Other promising uses of its AI tech include the development of autonomous robots or even AI-driven characters found in virtual reality worlds. Mordor Intelligence predicts the worldwide robotics market will more than double in size between now and 2029, and Precedence Research agrees with that outlook. Nvidia is excelling on both fronts.
So far, the robotics effort has been mostly used to improve video games. But, just last month, Nvidia unveiled a platform (called Jetson Thor) specifically designed to help develop "general humanoid robots." Know that no other developer is anywhere near as close to building such a complete collection of "embodied AI" robotics technologies as Nvidia is.
Nvidia is also pushing the pharmaceutical business closer to the practical use of AI-powered R&D. Nvidia's BioNeMo generative AI platform can do things like predicting the structure of a particular protein, or even predict how a molecule might interact when it encounters disease.
Trading Nvidia stock
Connect the dots. Nvidia's lead over its rivals is enormous, and the AI industry's growth itself is still accelerating. Nvidia stock is truly a best-of-breed holding in one of the most compelling markets. And that's going to be the case for a long, long while.
Nevertheless, it wouldn't be crazy to hold off just a bit before jumping in, just to see if this stock's most recent bullish period undergoes a correction. If it doesn't, so be it; some sideways movement will still let the overheated rally cool off.
Just don't wait too long or be too stingy if you're holding out for a better price. Remember, five years from now, you won't remember (or even care) if you got in at an exact low point. Besides, you're buying companies rather than stocks. If you pick the right company, the stock will eventually take care of itself.
