Despite its massive run, rising 1,100% since 2022, some of the best professional investment managers continue to buy Nvidia (NVDA +1.60%) stock. Third Point Capital's Daniel Loeb and Appaloosa Management's David Tepper are two notable billionaires who have added to their firm's holdings in the past two quarters.
The stakes in the artificial intelligence (AI) chip market have never been higher, as alternative chip options emerge to challenge Nvidia's dominant position. Here's what might explain why these prominent money managers are still building positions after Nvidia's monster run.
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Software widens Nvidia's competitive moat
AI continues to provide a significant tailwind for the chip industry. Hyperscalers are investing in expanding data center capacity, and new AI models are requiring more compute power. This creates a favorable backdrop of growing demand for Nvidia's powerful graphics processing units (GPUs). Its data center revenue grew 66% year over year in the most recent quarter.
NASDAQ: NVDA
Key Data Points
While some chipmakers, including Broadcom, are winning business by designing custom AI chips, Nvidia is protecting its lead by providing free tools like CUDA, which let developers easily build on Nvidia's hardware. Once AI researchers adopt CUDA, switching to another chip can disrupt product development. Nvidia had 5.9 million developers using CUDA in 2024, up from 4.7 million in 2023.
Considering this critical advantage, I think Loeb and Tepper see value in Nvidia stock right now. The stock trades at a forward price-to-earnings ratio of under 25 as I write this, which is attractive relative to the momentum in its data center business.
