The artificial intelligence (AI) industry offers a compelling investment opportunity. Forecasts estimate phenomenal growth for the nascent market, going from $184 billion in global sales in 2024 to nearly $827 billion by 2030.
Nvidia (NVDA 1.02%) has been a big beneficiary of the AI boom. Amazing sales growth propelled it to the world's leading semiconductor company by market cap, and the company's success makes it among the top AI stocks to buy.
Through the week ending Dec. 6, Nvidia shares are trading up almost 190% in 2024. With such an incredible increase, it may seem like the opportunity to buy shares has passed -- but that's not the case. Here's why Nvidia remains a great stock to invest in for exposure to the AI market.
NASDAQ: NVDA
Key Data Points
Nvidia's leadership in accelerated computing
One factor making Nvidia an attractive investment is its leadership in advanced semiconductor chips for AI. Some estimates place its market share in the space at 80%.
The company initiated this by pioneering accelerated computing back in 1999 with the introduction of its graphics processing unit (GPU). Accelerated computing uses GPUs to perform data-intensive tasks, such as those required by AI systems, leaving other computer processes to be handled by the CPU.
Accelerated computing took off with the rise of artificial intelligence, especially in the cloud computing sector, since AI systems commonly reside in the cloud's data centers. Demand for Nvidia's GPUs exploded with it.
As a result, in its fiscal third quarter ended Oct. 27, the company's data center sales reached a record $30.8 billion, a staggering 112% year-over-year increase. This drove overall Q3 revenue to hit a record $35.1 billion, up 94% over the previous year.
Nvidia's financial might
Nvidia's massive revenue growth leads into the other factor making it a top AI stock -- the company's financial performance. Record Q3 sales propelled net income to $19.3 billion, which represented 109% year-over-year growth.
Consequently, its Q3 diluted earnings per share (EPS) reached $0.78, up 111% from the prior year. In fact, Nvidia's EPS has been on a rocket ship since AI demand erupted in 2023.
Data by YCharts.
In addition, the company exited Q3 with a spectacular balance sheet. Total assets were $96 billion. This included cash, cash equivalents, and marketable securities of $38.5 billion, while total liabilities were just $30 billion.
Nvidia's many other strengths
Can Nvidia's incredible success last? Several factors are in its favor. The company is the market leader in GPUs, and its products are being adopted by businesses and governments around the world to build up their AI capabilities. For example, the company's GPUs are used in AI supercomputers for Denmark, Taiwan, and Japan.
Nvidia also offers a slew of AI solutions. Its new computing architecture called Blackwell is specifically designed for AI. Each Blackwell GPU contains over 200 billion transistors, making it the world's most powerful chip, according to Nvidia. The company's Chief Financial Officer Colette Kress noted customer demand for Blackwell is so strong, "we are on track to exceed our previous Blackwell revenue estimate of several billion dollars."
Adding to its GPU strength, the company also provides software for AI, such as its Nvidia NIM, a set of tools to simplify the creation of generative AI products. Many companies have adopted NIM, including ServiceNow and Broadcom. This integration of hardware and software tie customers more deeply into Nvidia's AI ecosystem and is another of the company's key strengths.
Finally, CEO Jensen Huang said he believes the AI era is ushering in a new Industrial Revolution, one where data centers transform into AI factories as technology steadily becomes dependent on AI. This means the cloud computing market, forecast to reach $2.3 trillion by 2032, would increasingly transition to an accelerated computing architecture and, hence, require GPUs. If he's right, as he was about accelerated computing, then tapping into this massive market provides Nvidia with a prosperous future as the leader in AI chips.
But what about Nvidia stock's incredible gains this year? Does this mean it's overvalued? Comparing the company's price-to-earnings ratio (P/E), a widely used metric to assess stock valuation, against other semiconductor businesses helps to answer that question.
Data by YCharts.
The P/E ratio tells you how much investors are willing to pay for a dollar's worth of earnings. As the chart shows, Nvidia's P/E multiple is the lowest by a substantial margin against other big names in the semiconductor industry, indicating its stock is still a good value.
The company's current outstanding financial performance, coupled with the success of products such as Blackwell and the long-term growth of the AI market, means Nvidia is well-positioned for years of prosperity ahead. Despite the stock price gains this year, Nvidia remains reasonably valued, making it a great investment to capitalize on the secular trend of artificial intelligence.
