Many experts see artificial intelligence (AI) as the investment opportunity of a lifetime. While the market is still nascent, chipmaker Nvidia(NASDAQ: NVDA) has already benefited substantially. Since January 2023, its trailing-12-month revenue has nearly tripled and shares have surged more than 600%.
After those astonishing gains, some investors may worry it's too late to buy Nvidia stock, but Wall Street remains bullish. Sixty-one analysts follow the semiconductor company, according to CNN Business. Within that group, 92% (56 analysts) rate the stock a buy, and the remaining 8% (5 analysts) rate the stock a hold. Not a single analyst recommends selling right now.
Even more compelling, Nvidia carries a median 12-month price target of $140 per share, which implies 35% upside from its current share price of $104. Suffice it to say Wall Street analysts generally do not believe it's too late to buy Nvidia. In fact, most view the current price as a reasonable entry point for investors.
Nvidia dominates the market for artificial intelligence (AI) chips
Nvidia graphics processing units (GPUs) are the industry standard in accelerating complex data center workloads like artificial intelligence (AI) applications. Analysts estimate its market share in AI processors between 70% and 95%, and Forrester Research recently wrote, "Nvidia sets the pace for AI infrastructure worldwide. Without Nvidia GPUs, modern AI wouldn't be possible."
Few companies achieve that level of dominance, but Nvidia managed to threat that needle for three reasons. First, its GPUs are the fastest data center accelerators on the market. Second, it offers a robust ecosystem of supporting software tools that make its GPUs the go-to option for developers of accelerated computing applications. Third, Nvidia provides adjacent hardware to supplement its GPUs, such that the company effectively builds entire AI data centers.
Nvidia has a durable competitive advantage that spans hardware and software
Nvidia consistently crushes the competition at the MLPerf benchmarks, tests that provide an unbiased evaluation of AI training and inference capabilities across hardware, software, and services. In March, Nvidia Hopper GPUs running its TensorRT-LLM software won every test of AI inference capabilities. In June, Hopper-based systems gave the best performance on every AI training workload.
However, superior GPUs are only one piece of the puzzle. Nvidia also provides adjacent hardware like high-performance networking platforms and central processing units (CPUs) purpose-built for AI. CEO Jensen Huang recently said, "We literally build the entire data center and we can monitor everything, measure everything, optimize across everything."
Beyond that, Nvidia CUDA is the most comprehensive ecosystem of supporting software for developers. CUDA includes tools for data preparation, model training, and deployment, which collectively streamline AI application development. That advantage will be hard to overcome because the CUDA ecosystem has been nearly two decades in the making, and Nvidia is still adding new tools at a steady clip today.
"Year after year, Nvidia responded to the needs of software developers by pumping out specialized libraries of code, allowing a huge array of tasks to be performed on its GPUs at speeds that were impossible with conventional, general-purpose processors like those made by Intel and AMD," according to The Wall Street Journal.
Nvidia shares are not cheap, but the price is justified by future growth prospects
Grand View Research expects AI spending across hardware, software, and services to grow at 37% annually through 2030. That means Nvidia will have a strong tailwind at its back for many years to come, and the company is unlikely to lose its dominance in AI hardware any time soon.
Toshiya Hari at Goldman Sachs recently wrote, "We believe Nvidia will remain the de fact industry standard for the foreseeable future given its competitive advantage that spans hardware and software capabilities, as well as the installed base and ecosystem it has built over multiple decades."
That said, Nvidia has reportedly delayed shipments of its latest Blackwell GPUs by at least three months due to a design flaw. Blackwell chips deliver up to four times faster training and 30 times faster inference than the previous Hopper architecture. That delay could drive worse-than-expected results when the company reports earnings on Aug. 28, which could cause the stock to decline.
Going forward, Wall Street expects Nvidia to grow non-GAAP earnings at 52% annually through fiscal 2026 (ends January 2026). That consensus estimate makes the current valuation of 57.7 times non-GAAP earnings look reasonable. Investors interested in purchasing shares of Nvidia should start with a small position today. If the stock falls after the upcoming earnings report, investors should consider using that opportunity to build a slightly larger position.
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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Goldman Sachs Group, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
