Artificial intelligence (AI) is widely recognized as a game-changing technology, and the number of potential applications grows with each passing day. While it might seem like these advanced algorithms are everywhere, the truth is that it's still early days for the adoption of AI, which some experts contend currently stands at less than 1%. This suggests the proliferation of AI is far from over, and the opportunity ahead remains vast.
Arguably, one of the biggest beneficiaries of the advent of AI has been Nvidia (NVDA +1.68%). The company invented the graphics processing units (GPUs) that facilitate this groundbreaking technology, and its chips are the top choice for AI processing. The impact has been undeniable, as the stock has gained 950% over the past three years (as of this writing), hitting a new all-time high midday on Friday.
Let's take a step back and look at the opportunity, what Nvidia brings to the table, and why the stock is still a buy.
Image source: Getty Images.
The gold standard for AI processing
Gamers have long hailed Nvidia's graphics cards as best-in-breed and the introduction of the GPU in 1999 revolutionized the gaming industry. What set its chips apart was parallel processing, or the ability to conduct a multitude of complex mathematical calculations simultaneously by allocating processing resources across the breadth of the chips' multiple cores. This turned the standard wisdom on its head, creating lifelike images in video games.
Noted AI researcher and adjunct professor of AI at Stanford University, Andrew Ng, published a revolutionary research paper in 2009 that detailed the potential application of GPUs in machine learning, an earlier branch of AI. Word spread quickly, and these chips became the gold standard for processing these early, yet cutting-edge, algorithms, controlling 95% of the GPU market for machine learning.
This early dominance of the market positioned Nvidia for the AI advancements to come.
Cornering the data center market
When generative AI made a splash back in early 2023, it was only natural that data scientists and researchers would turn to GPUs to facilitate the latest advancements in AI. The magnitude of the processing involved means that most generative AI takes place in data centers and the cloud, and Nvidia dominates the space, controlling an estimated 92% of the data center GPU market, according to IoT Analytics.
The demand for data centers is experiencing explosive growth, and that trend is expected to continue over the coming decade. Data center spending is expected to balloon from $392 billion in 2025 to nearly $1.7 trillion by 2035, according to Cube Research.
Given the ongoing data center buildout and Nvidia's dominant position as the de facto standard for AI processing, the company is well positioned for an AI-centric future.
Nvidia's enviable growth
In recent months, all eyes have been on Nvidia's decelerating growth rate. However, it was unreasonable to expect the company to continue its triple-digit year-over-year run indefinitely, and Nvidia's current growth still runs circles around the competition.
NASDAQ: NVDA
Key Data Points
During its fiscal 2026 first quarter (ended April 27), the company generated record revenue of $44.1 billion, which soared 69% year over year. Adjusted earnings per share (EPS) of $0.81 jumped 33% -- and that was even after a $4.5 billion charge for the H20 chips developed for the Chinese market that were subject to Trump administration export controls. If not for that one-time charge, EPS would have surged 57%.
Nvidia is forecasting continued robust growth. For its fiscal 2026 second quarter, the company is guiding for record revenue of $45 billion, which would represent growth of 50%. So while the days of Nvidia's triple-digit year-over-year growth may be in the rearview mirror, the company's growth is remarkable nonetheless.
Nvidia stock is cheaper than you might think
Given that Nvidia has recently hit a new all-time high, it's reasonable for investors to wonder if it's gotten too expensive, but the answer might be surprising.
Nvidia stock is selling for roughly 38 times forward earnings as of this writing. While that's certainly a premium, consider this: Over the past five years, Nvidia has grown its revenue by more than 1,000% and its EPS by 2,940%. This has fueled stock price gains of 1,470%, which helps illustrate why a premium is justified. Furthermore, when measured using the price/earnings-to-growth ratio (PEG ratio), which factors in the company's impressive growth, Nvidia has a multiple of 0.66; any number less than 1 is the standard for an undervalued stock.
Early days
The popular narrative has long been that the competition for Nvidia is ramping up, but thus far, no significant rival to its industry-leading processor has emerged. And despite the excitement, generative AI is still in its infancy, and most experts conclude that the adoption of AI will continue for at least the next decade.
No one knows for sure how big the AI market will ultimately be, but even more conservative estimates are informative. The generative AI market is projected to grow to $4.8 trillion by 2033, according to the United Nations Conference on Trade and Development.
Given Nvidia's dominant market position, wide adoption, attractive valuation, and the sheer magnitude of the opportunity, it's clear the company still has a long runway for growth ahead. That's why Nvidia stock is still a buy.
