What the latest artificial intelligence (AI) earnings report says about the future of Nvidia stock

of Artificial intelligence (AI) To keep up in the race to deploy and integrate AI applications, businesses are spending huge amounts of money building infrastructure, and the market continues to gain momentum in 2024.

According to some estimates, global spending on AI is expected to exceed a whopping $200 billion this year. Nvidia (NASDAQ:NVDA) It allowed investors to get rich on this huge splurge. Looking ahead, the semiconductor market driven by AI applications is expected to deliver a staggering $341 billion in annual revenue in 2033. The latest developments in the AI ​​chip market show that Nvidia remains the best option for investors to take advantage of this huge opportunity.

AMD and Intel’s earnings reports reveal they are far behind Nvidia

Nvidia got an early start in the AI ​​chip market. His A100 processor from the company was used to train his ChatGPT, the chatbot that launched his AI revolution towards the end of 2022. The company’s AI GPU (Graphics Processing Unit) has gained tremendous popularity; H100 processor was a huge success.

rivals etc. Advanced Micro Devices and intel It didn’t have a powerful enough chip to compete with Nvidia’s H100, so it was forced to play catch up. Both companies were at least a year behind Nvidia on the AI ​​chip development curve. This is evidenced by the December 2023 launch of his MI100X accelerator, a rival to AMD’s Nvidia H300. Meanwhile, Intel’s H100 rival Gaudi 3 was announced last month and is expected to start shipping later this year.

Nvidia’s H100 began full production in September 2022. This lead has given Nvidia a firm grip on its AI chip market, and also explains why competitors’ latest products haven’t gained as much traction. For example, AMD expects its AI GPU sales to reach at least $4 billion in 2024. Intel is further behind, and with the launch of Gaudi 3, he expects AI chip sales to reach his $500 million mark in the second half of 2024.

Considering that Nvidia sold $47.5 billion worth of data center chips in fiscal 2024, it is far ahead of both Intel and AMD, which is a 217% increase from the previous year. It also shows that new chips from AMD and Intel, which were supposed to eat into Nvidia’s 90%+ market share, haven’t made much of an impact on the latter’s dominant position.

One reason for this is that Nvidia has acquired the majority of its AI chip supply from foundry partners. taiwan semiconductor manufacturing (commonly known as TSMC). Specifically, NVIDIA reportedly accounts for half of TSMC’s advanced chip packaging capacity, which is being deployed to make AI chips.

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Additionally, Nvidia intends to further widen its technological gap with rivals by launching a new AI GPU based on the Blackwell architecture later this year. Market research firm TrendForce expects Nvidia to secure specialized chip supplies from TSMC for its next generation chips.

TSMC’s advanced chip manufacturing capacity is expected to increase 150% this year to 40,000 wafers per month. By next year, TSMC is expected to double its production capacity again. The important thing to note here is that NVIDIA is expected to consume more than half of his TSMC’s advanced chip packaging capacity. So Nvidia’s tight control over TSMC’s supply of advanced chips could help keep the likes of Intel and AMD at bay.

Nvidia’s AI leader is set for tremendous growth

investment bank UBS recently raised their price target on NVIDIA from $1,100 to $1,150, citing the impending arrival of next-generation AI GPUs. UBS expects the company to achieve sales of $175 billion in 2025 (coinciding with fiscal year 2026) and earnings of $41 per share. These estimates represent a significant increase compared to Nvidia’s fiscal year 2024 revenue of $60.9 billion and earnings per share of $12.96.

Assuming Nvidia reaches $41 in earnings per share this fiscal year and trades at a price-to-earnings ratio of 30x. Nasdaq-100 Based on the index’s earnings multiple (using the index as a proxy for tech stocks), the stock could reach $1,230 within a few years. This would be a 36% increase from current levels. However, NVIDIA currently trades at a price-to-earnings ratio of 74 times, and its AI chip advantage means it could continue to trade at a premium valuation.

So it’s no surprise that this AI stock delivered a much bigger return than analysts expected. That’s why it would be a good idea for him to buy Nvidia following the latest earnings reports of its peers.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends options for long January 2025 $45 calls on Intel and his short May 2024 $47 calls on Intel. The Motley Fool has Disclosure policy.

What the latest artificial intelligence (AI) earnings report says about the future of Nvidia stock Originally published by The Motley Fool