THE artificial intelligence (AI) The market continued to gain momentum in 2024, with companies spending huge amounts of money to build infrastructure so as not to fall behind in the race to deploy and integrate AI applications.
According to one estimate, global spending on AI is expected to exceed $200 billion this year, and chipmakers like Nvidia (NASDAQ:NVDA) allowed investors to enrich themselves thanks to this massive madness. Looking ahead, the market for semiconductors powering AI applications is expected to generate annual revenue of $341 billion in 2033. Latest developments in the AI ​​chip market indicate that Nvidia continues to stay the best choice for investors to capitalize on this tremendous opportunity.
Earnings reports from AMD and Intel clearly show they are far behind Nvidia
Nvidia had an early start in the AI ​​chip market. Its A100 processors were used for the training of ChatGPT, the chatbot that started the AI ​​revolution towards the end of 2022. The company’s AI GPUs (graphics processing units) have gained immense popularity and its The H100 processor has become a runaway success.
Rivals such as Advanced microsystems And Intel had to catch up because they didn’t have a chip powerful enough to compete with Nvidia’s H100. Both companies were at least a year behind Nvidia on the AI ​​chip development curve. This is clear from the fact that AMD’s rival to Nvidia’s H100, the MI300X accelerator, was launched in December 2023. Meanwhile, Intel’s H100 opponent, the Gaudi 3, was announced the month latest and will begin shipping later this year.
Nvidia’s H100 entered full production in September 2022. This lead has given Nvidia a firm grip on the AI ​​chip market and also explains why its competitors’ latest offerings aren’t gaining much traction. For example, AMD predicts its AI GPU sales will reach at least $4 billion in 2024. Intel is even further behind and expects the launch of Gaudi 3 to help it generate $500 million in sales of AI chips during the second half of 2024.
Nvidia has a head start on Intel and AMD as it sold $47.5 billion worth of data center chips in fiscal 2024, an increase of 217% from last year. last year. It also indicates that AMD and Intel’s new chips, which were supposed to help them chip away at Nvidia’s more than 90% market share, don’t actually result in a dent in the latter’s dominant position.
One reason this is the case is that Nvidia has cornered a large portion of its foundry partner’s AI chip supply, Semiconductor manufacturing in Taiwan (popularly known as TSMC). Specifically, Nvidia would control half of TSMC’s advanced chip packaging capacity deployed for AI chip manufacturing.
Additionally, Nvidia is set to widen the technological gap with its competitors with the launch of new AI GPUs based on the Blackwell architecture later this year. Market research firm TrendForce expects Nvidia to get a dedicated chip supply from TSMC for its next-generation chips.
TSMC’s monthly capacity to manufacture advanced chips is expected to increase 150% this year to 40,000 wafers per month. By next year, TSMC is expected to further double its capacity. The key thing to note here is that Nvidia is expected to consume more than half of TSMC’s advanced chip packaging capacity. Thus, Nvidia’s strict control over the supply of advanced chips from TSMC will help it keep Intel and AMD at bay.
Nvidia’s lead in AI should translate into tremendous growth
investment bank UBS Nvidia recently increased its price target from $1,100 to $1,150, citing the imminent arrival of its next-generation AI GPUs. UBS expects the company to generate revenue of $175 billion in 2025 (which will coincide with its 2026 fiscal year), as well as earnings of $41 per share. These estimates point to a massive increase from Nvidia’s fiscal 2024 revenue of $60.9 billion and earnings per share of $12.96.
Assuming Nvidia hits $41 earnings per share this fiscal year and trades at 30 times earnings, per Nasdaq-100 Depending on the index’s earnings multiple (using the index as a proxy for tech stocks), its stock price could reach $1,230 within a few years. This would represent a 36% jump from current levels. However, Nvidia currently trades at 74 times earnings, and it is likely to also trade at a higher valuation in the future thanks to its dominance in AI chips.
So it won’t be surprising to see this AI stock generate much bigger gains than analysts expect, which is why it would be a good idea to buy Nvidia following its peers’ latest earnings reports .
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Hard Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
This is what the latest reports on the benefits of artificial intelligence (AI) say about the future of Nvidia shares was originally published by The Motley Fool
