Few, if any, stocks have gotten as much attention over the past couple of years as Nvidia (NVDA -2.64%). Since the start of 2023, Nvidia's stock is up over 1,120%, far outpacing the S&P 500 index's 71% gain during that span (through Sept. 12).
The reason why Wall Street has been all over Nvidia over the past couple of years comes down to its dominance in artificial intelligence (AI) infrastructure. Its role begins with data centers, which give companies the ability to train, deploy, and scale AI as we know it today. Without them, AI wouldn't have advanced as quickly as it has in recent years. And without Nvidia, these data centers would be far less efficient.
Image source: Getty Images.
Nvidia's main contribution is its graphics processing units (GPUs), which you can think of as the engines of data centers. When it comes to data center GPUs, Nvidia has a virtual monopoly, providing them for top companies like OpenAI, Microsoft, Amazon, Alphabet, and Meta.
Nvidia's data center business is more than GPUs, too. It also includes a full suite of hardware and software to run AI workloads. This reliance on Nvidia has been reflected in its financials. In the second quarter, the company's data center revenue increased 56% year over year to $41.1 billion (88% of total revenue), and in the past two years, its total revenue has grown by 158%.
Nvidia has a lot of long-term appeal, but if you're planning to invest today, be aware of its high valuation. There's a lot of growth already priced into Nvidia's stock, so if it fails to meet investors' lofty expectations, it could experience sharp pullbacks and high volatility (as we've seen on numerous occasions).
