Nvidia (NASDAQ: NVDA) became a Wall Street darling last year when a boom in artificial intelligence (AI) highlighted the massive potential of its business. Its stock climbed 214% since last February and has shown no signs of slowing, rising 40% since the start of 2024.
The launch of OpenAI’s ChatGPT reinvigorated interest in AI and caused countless tech firms to restructure their businesses to prioritize the developing market. Increased demand for AI services boosted graphics processing unit (GPU) sales accordingly, as the chips are crucial for training AI models.
As a leader in GPUs, Nvidia’s business exploded over the last year. Meanwhile, the AI market’s compound annual growth rate of 37% until at least 2030 suggests GPU demand is unlikely to slow. Consequently, Nvidia remains one of the best ways to invest in the high-growth sector and tech in general.
So, here are four reasons to buy Nvidia stock like there’s no tomorrow.
1. Nvidia’s meteoric rise over the last year
Nvidia dominated the GPU market for years, significantly ahead of rivals Advanced Micro Devices and Intel. The company’s supremacy in the industry positioned it to immediately begin supplying its hardware to countless AI-minded firms right at the start of the AI boom last year.
In its most recent quarter (the third quarter of fiscal 2024 ended Oct. 29), Nvidia’s revenue increased by 206% year over year to $18 billion. Meanwhile, operating income jumped 1,600% to more than $10 billion. The monster growth was primarily thanks to a 279% increase in data center revenue, reflecting a spike in AI GPU sales.
In addition to soaring earnings, Nvidia’s free cash flow is up 243% in the last year to more than $17 billion, significantly higher than AMD’s $1 billion and Intel’s negative $14 billion.
So, despite new GPU releases from both chipmakers, Nvidia’s head start in AI potentially pushed it further ahead with greater cash reserves to continue investing in its technology and retain its market supremacy.
2. A majority market share will be challenging for rivals
Nvidia achieved an estimated 80% to 95% market share in AI GPUs last year. The company’s massive success in the industry motivated several tech firms to venture in as well. In 2024, AMD and Intel will begin shipping new AI GPUs specially designed to challenge Nvidia’s offerings. However, chip-market trends indicate Nvidia’s supremacy will be challenging for competitors to overcome.
Despite AMD’s and Intel’s presence in the sector, Nvidia held an over 80% market share in desktop GPUs for years. Intel only entered the industry last year, while AMD’s history in desktop GPUs spans decades. Still, AMD’s GPUs only account for about 10% of the market.
A similar situation occurred in the central processing unit (CPU) industry. Intel was king of CPUs for years, with an 82% market share at the start of 2017 when AMD landed on the scene with its Ryzen line of CPUs.
AMD managed to steal a significant share from Intel. However, Intel is still responsible for most of the CPU market, with its share above 60% and AMD’s at 36%.
Using the CPU market as a base of comparison, Nvidia could lose some AI GPU share to its competitors over the next year. However, it is unlikely to lose its leading position, which will allow it to see major gains from AI for years.
3. Nvidia benefits from a PC market recovery
While a spike in AI GPU sales is mainly responsible for Nvidia’s stellar financial growth, the chipmaker is also profiting from an improving PC market. Spikes in inflation prompted steep declines in PC sales, with shipments dipping 16% in 2022 and continuing to fall for most of 2023. However, recent reports indicate the market is finally showing signs of recovery.
Data from Gartner shows PC shipments popped 0.3% in Q4 2023, marking the first increase over a year. Market improvements have reflected in Nvidia’s sales, with its PC-centered gaming segment reporting an 81% rise in revenue in Q3 2024.
4. At its best value in 12 months
Data by YCharts. PE Ratio = price-to-earnings ratio.
Nvidia’s price-to-free cash flow and price-to-earnings (P/E) ratios plunged in the last year (as seen in the chart above), indicating its stock is at one of its best-valued positions in 12 months.
P/E is calculated by dividing a company’s stock price by its earnings per share. Meanwhile, the price-to-free-cash-flow ratio divides its market cap by free cash flow. These are helpful valuation metrics as they take into account a company’s financial health. For both, the lower the figure, the better the value. Nvidia’s declining figures could make now the best time to consider adding its stock to your portfolio.
Along with a powerful position in AI and an improving PC market, now is an excellent time to make a long-term investment in Nvidia and buy its stock like there’s no tomorrow.
Should you invest $1,000 in Nvidia right now?
Before you buy stock in Nvidia, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
*Stock Advisor returns as of February 5, 2024
Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Gartner and Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
4 Reasons to Buy Nvidia Stock Like There’s No Tomorrow was originally published by The Motley Fool