With shares up 244% year to date, Nvidia (NASDAQ:NVDA) the stock has been a sure hit for its short-term investors as the artificial intelligence (AI) The boom is driving demand for its data center chips. But what does the future hold, especially as more and more companies join this hot sector? Let’s dig deeper to find out how this tech giant might perform over the next three years.
If generative AI can be compared to the California gold rush, Nvidia sells the picks and shovels through its advanced technologies. graphics processing units (GPUs). This hardware is crucial for training and running generative AI applications and giving data centers the computing power they need to deliver AI-related solutions to their enterprise customers. The growing demand for these products shows no signs of stopping.
According to TechCrunch, Nvidia’s third-quarter revenue jumped 206% year over year to $18.1 billion, driven by sales of some of its higher-margin products, like the data center chip. H100, which can cost over $30,000. And WWith consumer demand shifting from Nvidia’s cheaper mainstream GPUs to its more expensive offerings, the chipmaker could quickly become one of the most profitable companies in the world. In the third quarter, its net margin increased from 46% to 51% while its profits jumped 588% to $10 billion.
Keeping the competition at bay
As with any new technology, the prospects of explosive growth and high margins attract more competition. For Nvidia, this will take two forms. The first will be cloud service providers, such as Amazon And Alphabet, which develop local AI chips. But it will mainly be for internal use. These companies likely won’t be able to completely end their reliance on Nvidia due to its technical lead as a GPU specialist and the speed with which demand is growing.
Perhaps Nvidia’s most credible threat comes from its former rival, Advanced microsystems (AMD), also a major player in the GPU industry. The company is launching its MI300 family of AI chips that it says outperforms Nvidia’s H100 on metrics like training and inference (running generative AI applications).
However, AMD CEO Lisa Su estimates that the AI chip market will grow from $45 billion to $400 billion by 2027. That leaves enough room for both companies to sell these products as fast as they can. can make them.
Stocks remain relatively affordable
With a market capitalization of $1.22 trillion, Nvidia is already the sixth largest company in the world, behind the e-commerce giant. Amazon. The tech giant’s epic size means it will be harder to impress the market, which could discourage growth investors. That said, Nvidia’s valuation isn’t as high as it seems. While it is price/sales ratio (P/S) of 27 is more than 10 times the S&P500 On average, the metric doesn’t account for Nvidia’s explosive growth rate or exorbitant margins.
The stock’s forward price-to-earnings (P/E) ratio (which looks at projected 12-month net income) can give a better understanding of Nvidia’s value. With a forward P/E of 25, the shares are cheaper than the market average of 26. The company could become undervalued over the next three years if its stock price doesn’t rise fast enough to keep up its explosive expansion thanks to AI.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Alphabet, Amazon and Nvidia. The Motley Fool has a disclosure policy.
Where will Nvidia’s stock surge be in 3 years? was originally published by The Motley Fool