Nvidia (NVDA +0.10%) has seen earnings climb in the double and triple digits in recent times -- and its stock price soar more than 1,300% in five years. This is a company's and a shareholder's dream scenario, and this dream may be far from over.
That's because Nvidia has established itself as the artificial intelligence (AI) chip leader. The company has also expanded into additional products and services. All this has made it the almost unavoidable stop for any customer serious about AI.
Analysts' predictions for market growth suggest that the general environment will be supportive of major AI players -- such as Nvidia -- in the years to come. They forecast that today's billion-dollar AI market will march on to the trillion-dollar mark by the end of the decade. This is great news for Nvidia, but my prediction is that two other things, worth more than $100 billion, will ensure the chip designer's AI dominance over the long run. Let's find out more.
Image source: Getty Images.
From video games to AI
Nvidia is an AI chip giant today. But its story didn't start out this way. The company initially served the video gaming market with its top-performing graphics processing units (GPUs). Then, as it realized the great potential of these processors, it broadened their usage into other areas. And when AI came along, the match was perfect. Nvidia put the focus on this technology very early in the AI story and built its position as market leader.
Today, AI sales make up the lion's share of Nvidia's revenue, at 88% in the latest quarter. This momentum is likely to continue, as the company's products are the key components to make AI work. For example, its GPUs power essential tasks like the training and inferencing of large language models, and the speed of the Nvidia GPU helps boost its customers' efficiency and overall performance.
Now, let's move along to my prediction. The things above position Nvidia well to succeed in the next phases of the AI growth story. But what may truly ensure its dominance are the following two things, as they show Nvidia partnering with other key players -- instead of fighting them -- to expand its AI empire.
NASDAQ: NVDA
Key Data Points
Working with other key players
Just this month, Nvidia announced investments in rival Intel and in customer OpenAI, owner of chatbot ChatGPT. Nvidia will invest $5 billion in Intel common stock and leverage Intel's platform to boost its own offerings. As part of the deal, Nvidia will integrate Intel's top central processing units (CPUs) into its AI systems, and Intel will integrate Nvidia GPU chiplets into its personal computer (PC) platforms. So Nvidia will gain the world's top CPUs and greater exposure to the PC market.
The OpenAI deal involves Nvidia investing as much as $100 billion in the AI research lab as it builds out infrastructure. That investment may support OpenAI's purchase of Nvidia GPUs, making this an enormous profit engine. Even better, this move ensures that one of the world's most powerful AI players will remain a significant Nvidia customer over time. This is particularly key now, as the AI buildout is unfolding worldwide.
What does this mean for you?
What does all this mean for you as an investor? If you were worried about Nvidia losing ground to competitors at this stage of the AI story, you might now breathe a sigh of relief. Though rivals may carve out a share of business and succeed -- after all, this is a massive market -- Nvidia is well positioned to continue leading the pack.
This means that Nvidia stock looks very reasonably priced today at 39x forward earnings estimates, making it a solid buy for investors aiming to get in on tomorrow's AI success story. If you're already a shareholder, you might want to hold on for the next chapters.
As I said, Nvidia has already been a winner in the AI market, but the great gains in earnings and stock performance that we've seen don't mean the adventure is over. There is plenty of room to run over the long term. My prediction is that Nvidia's move to include other market leaders in its fold, rather than shut them out, may be the key to its ongoing dominance.
