Despite the hype, the artificial intelligence (AI) revolution is just getting started. In the coming years, expect to see rapid improvements across the entire sector, with new AI-powered products and services consistently released to both consumer and corporate end users.
Which product or service will win long term is anyone's guess. But the situation is much clearer when it comes to the suppliers that will make this AI revolution occur in the first place. In fact, there's only one company I'd bet big on moving forward.
This AI supplier has a giant sustainable advantage
Everyone who has researched AI stocks is already familiar with Nvidia (NVDA -0.27%). The company is one of the world's largest businesses, with a total market capitalization worth several trillion dollars. But when it comes to betting on the AI revolution, which will continue to grow in scale and pace over the coming decade, Nvidia still has plenty of room to run. That's due to several reasons, the biggest of which is simply end-market growth.
According to a recent research report from global consultancy firm Deloitte, "Chip sales are set to soar in 2025, led by generative AI and data center build-outs." But it's not just any type of chip that will see massive growth. Specifically, the growth will occur in one emerging category: AI graphics processing units (GPUs). Deloitte estimates that these chips represented around 20% of total chip sales in 2024, with revenue totaling around $125 billion.
In 2025, AI-specific chips should grow global sales to around $150 billion, a decent year-over-year increase. But things will really start to take off in the back half of this decade. Lisa Su, the CEO of chipmaker Advanced Micro Devices, believes the total addressable market for AI chips could reach $500 billion in 2028 -- larger than almost the entire chip industry last year.
There have been many chip wars in the past in which certain chipmakers rose to dominance only to eventually lose their crowns due to competition. However, this cycle has the potential to be a bit different.
It's not that Nvidia won't eventually cede some of its dominant market share for AI GPUs, which is likely between 80% and 85% right now. But in the long term, the total growth in AI infrastructure demand may allow for several winners. That is, while Nvidia may cede share over time, spending on its products may be so robust that overall sales continue to climb at impressive rates for years to come.
There's even a chance that Nvidia somewhat maintains its current stranglehold on the AI GPU market due to one specific advantage: its developer ecosystem. This sustainable advantage makes the stock a buy right now for patient shareholders.
Nvidia stock is a buy right now because of this
Nvidia's current lead in AI GPUs boils down to a few factors. First, it made massive investments in the AI space well before most of its competitors. Second, it used the results of this early investment to build an early lead and then continued to invest the proceeds in more innovation, allowing it to build innovation momentum as the AI space took off.
Finally, and perhaps most importantly, the company went all-in on developer attraction and retention nearly two decades ago with a new programming model and language for its GPUs, plus a free software development kit called CUDA. In a nutshell, these moves allowed it to attract developers into its architecture ecosystem, using its products across the entire tech stack.
This gave developers performance benefits and created a level of "stickiness" for Nvidia's products, an advantage that eventually translated into its AI products. As a report by industry publication Communications of the ACM concludes:
CUDA software only runs on Nvidia GPUs. ... Rising application usage, such as for training LLMs [large language models] and running inference engines built with CUDA software, requires more Nvidia hardware. ... In this case, Nvidia dominates both the hardware and software sides of the platform.
With a hold on both the software and hardware sides of the equation through long-term developer outreach and collaboration, Nvidia remains a great long-term option for investors betting on the AI revolution.
