Artificial intelligence (AI) companies are benefiting from a surge in demand and new investments as companies worldwide shift their strategies toward AI-focused products and services. However, while many companies have seen their share prices rise thanks to AI, not all will benefit as the industry's focus shifts toward hardware.
In the tech world, being an advanced hardware company is much more challenging than creating a new AI service. It takes years of investment, strategy, and customer adoption to lead in the hardware industry. Nvidia (NVDA 0.97%) has been extremely successful at this, and it's likely to continue being one of the best AI stocks as the broader hardware story plays out. Here's why.
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AI hardware spending is still accelerating
Nvidia designs some of the world's most advanced processors used in AI data centers. Even years before AI took off, big tech companies used Nvidia's graphics processing units (GPUs) to train their AI systems. Then, when OpenAI released ChatGPT and the AI arms race started, they ramped up spending, and other companies joined the race.
The result has been staggering for Nvidia's data center sales. Consider that in fiscal 2020, the company had about $3 billion in data center sales. At the end of fiscal 2025, it had surged 3,733% to $115 billion.
Those sales are a direct result of OpenAI, Microsoft, Alphabet, Meta, and others investing billions of dollars to build new AI data centers and expand existing ones.
And they're not done yet.
Alphabet said recently that it would spend an additional $40 billion for data centers over the next two years; AI company Anthropic recently announced it would spend an additional $50 billion to build new AI infrastructure; and OpenAI has said that it's spending more than $1 trillion over the next eight years. What's more, Nvidia's Jensen Huang said in a recent quarterly earnings call that he estimates tech giants will spend between $3 trillion to $4 trillion on AI infrastructure over the next five years.
In Nvidia's recently reported third-quarter results, the company's data center revenue of $51.2 billion was up 66% from the year-ago quarter and easily beat Wall Street's consensus estimate of $49 billion. With its lead in the data center processor market and tech giants still making big investments, Nvidia continues to prove that it's well positioned to benefit.
NASDAQ: NVDA
Key Data Points
Nvidia could benefit even when spending slows
While there's no current end in sight for AI hardware spending, it's wise to remember that nothing lasts forever. At some point, large tech companies won't need to invest so much in AI infrastructure, and they'll eventually scale back.
It's likely that when that day comes, some Nvidia investors will panic and hit the sell button. However, I believe there's long-term value in owning the AI hardware even when some of the spending slows, because ongoing updates to data center infrastructure will be necessary, and leading companies will not want to fall behind.
Think of it like buying the most advanced iPhone 10 years ago. Its hardware, camera, and software were very impressive then. But while it's still functional, there's a lot better tech available now. The same is true for AI processors; they're continually getting more advanced, and tech companies will likely need to make ongoing investments in them even after the initial AI surge has passed.
With Nvidia's processors already holding about 90% of the GPUs in AI data centers, Nvidia will likely benefit from this dominant position for years to come.
Among AI stocks, Nvidia is priced relatively well
Even with its gains of 1,200% over the past five years, Nvidia's stock has a price-to-earnings ratio (P/E) of about 46 right now. That's relatively well priced when you consider that other AI hardware companies, including Advanced Micro Devices and Broadcom, have P/E ratios of 117 and 90, respectively.
It's worth noting that while Nvidia remains a strong AI hardware stock to own, investors shouldn't expect the stock to deliver the same returns it has over the past few years. Instead, look for the company to benefit from the current AI infrastructure spending and then enjoy its position at the top of the AI infrastructure companies as the AI market matures.
