Nvidia (NVDA 1.53%) already has scored a major win in artificial intelligence (AI) over the past few years. The company, seeing the opportunity well before the AI boom started, focused on honing its chips to power this revolution. As a result, Nvidia delivered high-powered graphics processing units (GPUs) to the market at just the right time and established itself as the market leader.
The tech giant's innovation, updating its GPUs on an annual basis, has kept this going. In another smart move, Nvidia hasn't only focused on chips but also has built out an entire ecosystem of supporting products.
Now, my prediction is that one thing in particular will make Nvidia the biggest winner of the AI race as this story continues to unfold. I'll give you one hint: It's not the GPU.
Image source: Getty Images.
Nvidia's high level of profitability
First, though, let's quickly consider Nvidia's path over the past few years. As mentioned, the company has developed a strong presence in the AI market, and this has led to enormous earnings growth. Nvidia has seen revenue surge to records, at more than $130 billion in the most recent full year. And the company has done this at high levels of profitability as we can see by gross margin steadily above 70%. (One quarter early last year was an exception, when Nvidia took a charge for inventory that it wasn't able to sell to China due to export controls. But this was a unique event and not a trend.)
NASDAQ: NVDA
Key Data Points
All of this has made the name Nvidia almost synonymous with AI, and investors aiming to bet on this exciting market have rushed to get in on Nvidia stock. As a result, the shares have climbed 1,000% in three years.
Now, let's move along to my prediction. Of course, the GPU, one of Nvidia's star products and a tool crucial to many AI tasks, is key to its success today and moving forward. But the GPU alone won't keep Nvidia on top. Instead, my prediction is that this will make Nvidia the biggest winner in the next chapters of AI growth: the tech company's efforts to become the backbone of AI across industries and markets.
A partnership with Nokia
One clear example is Nvidia's partnership with telecom giant Nokia, announced late last year. Nvidia aims to help transform the telecom industry by building an AI platform that will be used for the transition to 6G technology from 5G. As part of this, Nvidia announced its Arc Aerial RAN Computer, an AI-driven telecommunications computing platform.
Other examples include Nvidia's portfolios for robotics and autonomous vehicles -- in these areas, the AI powerhouse is on track to become a significant player as it offers the basic tools needed to develop these innovations and put them to work. At CES last week, Nvidia announced Alpamayo, a family of AI models to boost autonomous vehicle development. Using reasoning, these models may play a key role in ensuring safety -- a point of crucial importance in the market.
Creating the stack
A comment from Nvidia chief Jensen Huang at CES reinforces my prediction: "Our job is to create the entire stack so that all of you can create incredible applications for the rest of the world," Huang said.
All of this shows that, though the GPU is central to Nvidia's work, it doesn't stand alone. The company's efforts to build out products and services that support many industries and applications represent a major move. This didn't happen overnight and is an ongoing process. And this means that Nvidia itself, as it launches various new products and services, may see revenue progressively advance -- and potentially the stock price too.
So, as the AI story continues, my prediction is that Nvidia's focus on making itself the backbone of all things AI will help it emerge as an ongoing winner, and that's fantastic news for long-term shareholders.
