Artificial intelligence (AI) isn't new to Alphabet. In 2001, the company (then known as Google) incorporated machine learning into its search engine to help correct spelling errors. Five years later, it launched Google Translate -- a tool that used AI to translate languages.
Eric Schmidt was at Google's helm for both major AI milestones, serving as CEO from 2001 to 2011. He remained chairman of the board for four years before moving into the Executive Chairman position from 2015 through 2018.
You might think that Schmidt would view Google as the top dog in AI, but that doesn't appear to be the case. Here's why the former Google CEO thinks Nvidia (NVDA 2.94%) is a no-brainer AI winner.
NASDAQ: NVDA
Key Data Points
Nvidia's big advantage
Schmidt recently spoke to a class at Stanford University about AI. A video of his talk was initially posted online but subsequently taken down at his request. During the session, Schmidt expressed a positive view about Nvidia's prospects.
The former Google CEO remains connected to the technology industry. He told the Stanford students that major corporations he has spoken with plan to invest heavily in data centers to support AI and primarily use Nvidia's graphics processing units (GPUs). Schmidt said, "I'm talking to the big companies, and the big companies are telling me they need $20 billion, $50 billion, $100 billion -- very very hard."
Nvidia's rivals remain far behind, according to Schmidt. He thinks it will be challenging for them to close the gap with Nvidia for one simple reason: The open-source tools many AI developers are using are based on Nvidia's CUDA programming language.
What about Advanced Micro Devices' new AI chips? Schmidt said that AMD's software used to translate CUDA code "doesn't work yet."
"You know what to do"
Schmidt told the Stanford students, "If $300 billion is all going to Nvidia, you know what to do in the stock market." He quickly added, "That's not a stock recommendation." However, his statements are about as close to a recommendation for Nvidia as you can get without actually recommending buying the stock.
Nvidia reported $26 billion in revenue in the first quarter of fiscal 2025. The company's guidance projects revenue of $28 billion in Q2. If Schmidt is correct that an additional $300 billion in revenue is on the way for Nvidia soon, the stock should enjoy a big boost.
Although he sounded most bullish about Nvidia, Schmidt also expressed a positive view about Nvidia's biggest customers. He argued that big companies with the financial flexibility to invest more heavily in Nvidia's chips will gain significant advantages over smaller rivals that can't afford to invest as much.
Schmidt didn't specifically mention his former company as one of the likely AI winners. However, he did state there were only three "frontier" AI models and that the gap between those three models and others "appears to be getting larger." Google Gemini is almost certainly one of those three AI models he alluded to along with OpenAI's GPT-4 and Anthropic's Claude.
Nvidia isn't a no-brainer for everyone
No investor should buy Nvidia stock solely because an influential technology leader thinks it should enjoy strong growth. Schmidt's view could be wrong. Even if he's right, Nvidia won't be a great fit for every investment portfolio.
That said, I fully agree with the former Google CEO that Nvidia stands to be a major beneficiary of increased AI spending by major corporations. Whether or not his $300 billion figure is correct, a boatload of money is likely to flow Nvidia's way over the next couple of years.
Of course, Nvidia's market cap of $3.2 trillion already has a huge amount of sales growth baked in. Valuation expert Aswath Damodaran believes that the company will need a new growth market beyond AI infrastructure to be worthy of investors' interest right now. I think he could be right, too. But I also suspect Nvidia will have significant new market opportunities over the next few years.
