The artificial intelligence (AI) boom is well underway, and there may be no company that's benefited from it more than Nvidia (NVDA +2.94%). For years, the company's semiconductors have been a top choice among leading tech companies for AI processing, and now, it's paying off for Nvidia's stock.
The company's share price has more than doubled over the past year, causing many investors to wonder: Where does Nvidia go from here? Here are a few thoughts on the company's leading AI position and what it could mean over the next year.
Maintaining AI dominance
To understand where Nvidia might be a year from now, you need to know where it is right now -- sitting at the top of the AI hill. Nvidia holds an estimated 70% to 95% of the AI chip market and is continually innovating to hold onto its lead.
The company recently released its H200 AI processor, the follow-up to its ultra-popular H100. CEO Jensen Huang says that demand is already outstripping supply.
NASDAQ: NVDA
Key Data Points
How does this AI dominance translate into a real benefit for Nvidia? The company's data center revenue -- which includes its AI chip sales -- soared 427% from the year-ago quarter in Q1 (which ended April 28), reaching $22.6 billion.
What about Nvidia's competition? It does have some worthy rivals. Advanced Micro Devices is its main competitor and shouldn't be ignored. But even the scale of AMD's AI growth is minuscule, compared to Nvidia.
AMD's second-quarter (ending June 29) data center sales rose 115% to just $2.8 billion. While impressive, it's just a fraction of Nvidia's data center revenue and far below its sales growth.
More AI investments
Some of the world's largest tech companies made headlines recently when they reported quarterly results. Investors were interested in their revenue and earnings, but their billions of dollars in AI spending garnered lots of attention.
Here's how two tech CEOs recently defended the considerable spending spree:
- "I actually think all the companies that are investing are making a rational decision, because the downside of being behind is that you're out of position for like the most important technology for the next 10 to 15 years." Meta CEO Mark Zuckerberg said on a recent podcast.
- "When we go through a curve like this, the risk of underinvesting is dramatically greater than the risk of overinvesting for us here," Alphabet CEO Sundar Pichai said on his company's latest earnings call.
According to Goldman Sachs, other tech companies are spending massive amounts of money to compete in AI, as well, and all of their collective spending will total $1 trillion over the next few years.
There's no guarantee that Nvidia will benefit from these investments or that companies will continue to invest as heavily as they have over the past year. But tech companies are currently embattled in an AI land grab. Nvidia's AI chips are the best, and spending is on the rise. That puts the company in a great position over the next year.
A potential buying opportunity
Let me state the obvious first: Nvidia is expensive. The company's shares have a price-to-earnings ratio (P/E) of 40.9. That's not cheap by any measure, but it's less expensive than its shares were this time last year when it had a P/E ratio of about 63.
A recent pullback in the stock market -- thanks to a handful of factors, including concerns about U.S. job growth -- has pushed Nvidia's share price down about 20% over the past month. This recent dip could be an opening for investors who are bullish on AI.
Nvidia's shares won't see the massive gains they've experienced over the past year. However, considering its leading AI position, along with the fact that large tech companies are ramping up AI infrastructure spending, Nvidia has the potential to outpace the market over the next year or more.
