If you want to see how the world changes over the years, just follow the companies that soar to the top of the stock market.
The Motley Fool listed the world's largest companies by market cap. As you can see, technology and communication services have a significant presence, which is probably not a surprise in an increasingly digital and connected world.
Over the past few years, Nvidia (NVDA 1.53%) has surged to the top of the list. The company has dominated the artificial intelligence (AI) industry as the leader in graphics processing units (GPUs), the chips used to train and operate AI models in data centers.
But is the tech company still a buy, despite its whopping $4.5 trillion market cap today? Here is what you need to know.
Image source: Nvidia.
Robust AI growth despite increased competition
Nvidia has enjoyed a generational investment cycle with AI. A relatively small handful of companies, known as AI hyperscalers, are investing billions of dollars in data centers to establish the infrastructure and computing capacity necessary to support the global rise of AI technology.
So far, Nvidia has enjoyed dominance as the gold standard for the chips used in these data centers. Some experts have pegged Nvidia's market share in this space as high as 92%. Naturally, such success attracts competition. Alphabet, one of Nvidia's customers, has developed its own chips and could potentially sell them to other companies, such as Meta Platforms, another one of Nvidia's clients.
While investors shouldn't welcome competition, the pie, thus far, seems big enough to feed multiple companies. Nvidia's revenue growth has surged on, and analysts have had to continually increase their estimates to keep up with Nvidia's business results.
NVDA Revenue (TTM) data by YCharts.
Nvidia is in the middle of its Blackwell chip cycle and plans to launch its successor, Rubin, in the coming months. Management touted that Blackwell and Rubin could combine for roughly $500 billion in potential sales through the end of next year. That represents significant growth still ahead for a company with $187 billion in revenue over the previous four quarters.
Nvidia must evolve beyond data centers
At some point, investors should anticipate that this investment cycle will level off. If the appropriate returns on these AI investments don't materialize soon enough, some of these companies will face enormous pressure to pull back their spending.
The reality is that Nvidia's long-term success may hinge on how well it identifies new AI growth opportunities beyond data centers. Two potential winners are humanoid robotics and autonomous vehicles. Both of these industries are in their early innings, but it seems like a matter of time before they hit their stride.
These technologies could depend on more localized computing. For instance, vehicles and robots may need AI chips onboard each unit in the field to ensure they can process their software and function in real time, with minimal lag.
Nvidia, which had the foresight to prepare for the AI opportunity before it was apparent, also recognizes the opportunities in these emerging industries. Nvidia has business units and ecosystems for developing both robotics and self-driving vehicles.
NASDAQ: NVDA
Key Data Points
Still, time will tell how well this translates to revenue and profits over the coming years. Nvidia potentially getting caught between the maturing of the data center boom and the acceleration of newer AI opportunities is arguably the most serious risk to the stock moving forward.
Is the stock a buy now?
The stock currently trades at a price-to-earnings ratio of 45, which seems high, but analysts expect Nvidia to grow its earnings per share by an annualized rate of 35% over the next three to five years. That's a PEG ratio of 1.3, an attractive valuation for the growth you could see.
It's hard not to like Nvidia's chances to deliver as expected if the company actually sees Blackwell and Rubin turn in $500 billion in sales as predicted. Additionally, Nvidia's data center business has a floor, even as broader spending peaks. Companies will likely replace and upgrade chips as they age.
While Nvidia must eventually graduate to new AI opportunities outside the data center, investors are justified in buying the stock today, even after its ascension to its place as the world's largest company by market cap.
