Nvidia (NVDA +0.33%) stock has been flying high over the past few years -- rising about 1,000% over the latest three -- thanks to the company's key role in the artificial intelligence (AI) market, one predicted to reach into the trillions of dollars over the next few years. The tech giant designs the chips used for critical AI tasks, so in many investors' minds, it's a bet that Nvidia is the best way to benefit from the AI boom.
And Nvidia hasn't just shown its strength through stock performance. The company has delivered quarter after quarter of revenue gains -- with annual revenue surging more than 300% over a period of two years -- as AI customers rush to get in on Nvidia's powerful graphics processing units (GPUs).
After such increases, though, investors in recent times have kept a close eye on Nvidia for any signs of weakness. They've worried about a potential AI bubble and whether growth really may continue at the current pace. And that's why news that SoftBank just sold its entire stake in Nvidia may sound an alarm bell.
But before drawing any conclusions, let's check out the one key thing you need to know.
Image source: Getty Images.
The world's top GPU
First, a quick look at Nvidia's AI story so far. As mentioned, the company sells GPUs -- but not just any GPUs. Nvidia's outperform all others on the market, and on top of this, the company offers a full portfolio of related products and services. So, Nvidia can respond to the needs of any AI customer for any AI project.
Today, during the infrastructure ramp-up, Nvidia's GPUs are key purchases for data centers -- and these GPUs also will be essential tomorrow as AI customers apply the technology to real-world problems.
Nvidia has attracted investment from retail investors, billion-dollar hedge funds, and until just recently, Japanese holding company SoftBank owned a stake. But this week, SoftBank said it sold all of its Nvidia shares for more than $5.8 billion back in October.
Now, let's consider the one thing you need to know about this SoftBank move to determine what it means for Nvidia. SoftBank didn't express any loss of faith in Nvidia's path from this point forward, and instead said it sold the shares to help fund other AI investments. In fact, according to Bloomberg, SoftBank executives said the move didn't have to do with Nvidia and was simply necessary to support other projects.
The message from SoftBank
I would go a step further and say this move, allowing SoftBank to increase its presence across AI opportunities, delivers a positive message regarding the future of the technology: SoftBank aims to invest in as many promising AI players as possible, which suggests it's very optimistic about the technology moving forward.
And this is great news for Nvidia, since, as I said, Nvidia plays a crucial role in the development and use of AI. As the technology gathers momentum, as long as Nvidia keeps up its innovation goals, the company will almost automatically benefit.
Therefore, this decision by SoftBank shouldn't be viewed as a sign that Nvidia's business is weakening, and instead as a sign that AI has plenty of bright days ahead.
NASDAQ: NVDA
Key Data Points
Nvidia's valuation
Nvidia, trading for 42x forward earnings estimates, isn't offering you a bargain price, but it isn't out of sight either. Considering the company's strengths across the high-growth market of AI, valuation remains reasonable, and this means it isn't too late to get in on this stock, especially if you aim to hold on for a number of years.
Owning stocks for the long term is the best way to win in investing, offering companies time to develop, and in a growth field like AI, the results may be spectacular. So this, along with SoftBank's ongoing optimistic view of the AI landscape, means that Nvidia stock still is a great one to buy and hold as the AI revolution continues.
