Nvidia (NASDAQ: NVDA) Apple shares have fallen from their June peak as the stock market appears to be debating the future of the AI boom.
Some investors believe the rally was overdone because the new technology has yet to produce a “breakthrough app” or cause any major disruption to the economy. There was evidence of this when alphabet and Microsoft Shares of major tech companies fell after their recent earnings reports, as investors questioned the level of spending on artificial intelligence infrastructure and wondered whether these tech giants would get a return on those investments.
But there are plenty of AI pessimists, including former Google CEO Eric Schmidt. In a recent talk at Stanford University, Schmidt commented on the development of AI, saying that companies plan to spend tens of billions or even hundreds of billions of dollars on AI infrastructure. Microsoft and OpenAI, for example, are planning a massive data center and supercomputer project, known as Stargate AI, that could cost up to $100 billion.
“Sam Altman (OpenAI CEO) is a close friend,” Schmidt added. “He thinks it’s going to take about $300 billion, maybe more…” The “that” here refers to meeting their AI infrastructure needs.
“If all $300 billion is going to Nvidia, you know what to do with the stock market,” he continued, but added: “This is not a stock market recommendation.”
However, it serves as a reminder to investors not to take their eyes off the long-term goal when it comes to AI, as the building process is still in its early stages.
$300 billion may be just the beginning.
Keep in mind that Schmidt’s quote only refers to OpenAI’s infrastructure needs, so if that’s true, the demand in the industry is much greater than that.
In fact, Sam Altman is trying to raise up to $7 trillion to expand the global semiconductor industry in order to achieve Artificial general intelligence (AGI), or artificial intelligence that has the same or greater capabilities as humans.
AGI is the stated goal of OpenAI, and other tech visionaries like Tesla Elon Musk is also working toward this goal. Investors should expect him to continue building the computing power needed to achieve AGI. Nvidia CEO Jensen Huang has predicted that AGI will be five years away, so the market is likely to see increased investment in AI during that time.
What does this mean for Nvidia?
Looking beyond market volatility and investor skepticism, there is no change in the tech industry’s expectations for AI. The race between the “Big Seven” and other companies will determine the industry’s next generation winners, and it is crucial to build the necessary infrastructure.
Nvidia remains the leader in data center GPUs and other components needed to run AI models like ChatGPT, and will likely continue to dominate this market even with competition from AMD and Intel Comes online.
NVIDIA’s share of the data center GPU market is estimated to be 98% in 2023, and the company’s data center revenue jumped 427% in the first quarter to $22.6 billion. That growth rate is expected to slow as it outpaces the initial generative AI investment boom that followed ChatGPT’s launch, but NVIDIA is sure to grow at a high rate as the race toward general AI accelerates.
Investors can debate the proper valuation of Nvidia stock, but it’s hard to question the strength of its business and future potential. Demand for its products still needs a lot of work, according to AGI’s needs and statements from the likes of Schmidt and Altman.
In fact, Schmidt’s biggest concern about the AI infrastructure boom was finding enough electricity to power these massive data centers. While that may be a challenge in the future, it makes perfect sense to follow his advice and buy Nvidia stock now.
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Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: Buy $45 in January 2025 on Intel, Buy $395 in January 2026 on Microsoft, Buy $35 in August 2024 on Intel, and Buy $405 in January 2026 on Microsoft. The Motley Fool has Disclosure Policy.
300 Billion Reasons to Buy Nvidia Stock Now Originally posted by The Motley Fool
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