It seems like everyone is trying to identify the next big AI stock. There are many to choose from, but as with any craze, picking long-term winners from long-term losers can be a difficult task. While there are many exciting names to choose from, there's one business in particular that every artificial intelligence investor needs to own in 2025 and beyond.
NASDAQ: NVDA
Key Data Points
One AI stock every investor should own
Artificial intelligence will be one of the biggest growth opportunities this century. The United Nations believes that the AI market will zoom from $189 billion in value in 2023 to nearly $5 billion in value by 2033. But betting on AI isn't as easy as just buying any business exposed to this massive theme. Some companies are developing AI technologies, some are consuming these technologies to gain competitive advantages and operational efficiencies, and yet others are selling to the AI developers themselves, making future innovation possible.
There's an old saying: When everybody is digging for gold, it's good to be in the pick-and-shovel business. This wisdom advises investors not to go straight into the rush itself, but to supply the rush with the requisite supplies. This way, no matter who finds gold, or whether or not there is gold at all, you still come away with a profit. In this regard, no AI stock shines more than Nvidia (NVDA 1.56%).
Nvidia is by far the leading supplier of GPUs to the AI industry. Sometimes, these specialized GPUs are sold directly to AI developers. Most sales, however, are directed toward data center providers or cloud computing providers. These businesses own data centers around the world powered by GPUs. When an AI developer wants to train a model, a mature AI business wants to execute an AI application, or a consumer wants to use that application on their smartphone, the data required is usually processed and delivered using cloud computing infrastructure.
Roughly 90% of data center GPUs are manufactured by Nvidia -- a dominant market share that shows how much more powerful and in-demand its chips are compared to the competition. Therefore, nearly any business or individual that wants to incorporate AI into their processes will be using Nvidia chips. And any developers looking to build new AI applications will also likely be using Nvidia chips. Put simply, Nvidia is sitting at the center of the AI revolution.
However, over the past five years, Nvidia's stock has risen by an astounding 1,400%. Is it too late to jump in? You might be surprised by the answer.
Image source: Getty Images.
Should you wait to buy Nvidia shares?
Nvidia stock looks expensive at first glance, with shares trading at roughly 46 times earnings. But this is already a very profitable business, and sales continue to grow at double-digit rates. Looking ahead based on next year's earnings, the stock trades at just 30 times forward profits. That's still a premium to the S&P 500's forward earnings multiple of around 23, but the valuation starts to seem much more reasonable once you factor in some expected growth.
NVDA PE Ratio data by YCharts
The most important thing to keep in mind is that the AI revolution won't unfold over the next year or two. This is truly a multidecade opportunity. Nvidia will face competitive and pricing pressures over time, but market growth will be sustained for so long that even if some market share is ceded, the company should still be able to grow significantly over the next decade.
As with any growth stock, Nvidia shares will be exposed to high levels of volatility. But if you're willing to stay patient, the upfront premium isn't as steep as it seems, and this one AI stock should be a continued winner through 2025 and beyond thanks to its central position in the AI supply chain.
