Nvidia (Nasdaq: NVDA) Stocks made headlines on Wednesday when they became the third U.S. public company to cross the $3 trillion market capitalization threshold. In January 2022, apple He was the first to achieve this remarkable feat, and he was followed by others Microsoft In January 2024. A growing group of investors believes Nvidia will inevitably take over Market value Crown from Microsoft sometime in the near future.
Let's take a look at what drove Nvidia stock to such dizzying heights and what investors can expect from the chip maker in the future.
Chip maker to the stars
Nvidia has been on fire in recent years as interest sparked by artificial intelligence (AI) spread like wildfire. However, it is important to look back because it was not long until investor sentiment turned decisively against Nvidia. Consider the following: Between November 2021 and October 2022, Nvidia stock fell more than 66% in the face of macroeconomic headwinds. Gamers were making do with old graphics cards, and companies weren't interested in modernizing their data centers.
“This too shall pass,” or so the old saying goes. The emergence of generative AI in early 2023 caused a paradigm shift in technology, and investors quickly realized that Nvidia's data center chips were at the heart of the AI revolution.
In short, generative AI is a new branch of artificial intelligence that can create original content, unlike anything that has come before. These AI models can write poems, design new songs and music, and even create digital paintings and other images. The new capabilities of these systems quickly caught the attention of technologists who realized that these same systems could be configured to draft emails, create presentations, create charts and graphs, and even write code and debug errors. These capabilities could increase worker productivity, thus saving companies time and money – and the race was on.
The secret to Nvidia's success is the parallel processing capabilities built into its graphics processing units (GPUs). In simpler terms, parallel processing takes huge computational tasks and breaks them into smaller chunks, making short work of cumbersome tasks. The company had already reused this technology to develop previous versions of AI, so Nvidia was ready when generative AI came along.
However, these AI models, which contain trillions of variable bits of training data — called parameters — still require thousands of GPUs to complete the task. For example, to train OpenAI's GPT-4, it took more than 25,000 of Nvidia's cutting-edge A100 AI processors to complete the task. Now consider that each of these A100 chips costs about $10,000, or roughly $250 million, to train just one Artificial intelligence model. Multiply that by all the cloud infrastructure providers, data centers, and enterprise-level companies around the world that want a piece of the AI work, the scale of the opportunity becomes clear.
Proven track record of success
NVIDIA would not be where it is today without the vision of CEO Jensen Huang. AI is rapidly becoming ubiquitous now, but that wasn't the case in 2013 when a mysterious CEO spun Nvidia around and bet the company's future on adopting this as-yet-unproven technology.
Believing that AI was the future, Huang adapted parallel processing, which originally provided lifelike visuals in video games, and unleashed it to handle the rigors of AI. And the rest, as they say, is history.
Nvidia already had a long history of success before generative AI became the belle of the ball, but AI now pays the bills. Over the past decade, Nvidia's revenue has jumped 2,260%, resulting in net income rising 11,530%. This has sent its stock price up 27,900%, and many believe the best is yet to come.
Nvidia's meteoric rise is about to give way to… 10-for-1 stock splitWhich is scheduled to take place after the market closes on Friday. Research compiled by American bank Analyst Jared Woodard points out that companies that split their stock tend to gain 25%, on average, in the year following the split, compared to a 12% gain for their stock. Standard & Poor's 500. This is likely due to the same operational and financial excellence that sent the stock price so high, resulting in a stock split.
A look at Nvidia's latest results paints a compelling picture. For the first quarter of fiscal 2025 (ending April 28), Nvidia's revenue rose 262% year over year to reach a record high of $26 billion, while earnings per share rose 629% to $5.98. The results were driven by the data center sector, which includes artificial intelligence processors, where revenues of $22.6 billion jumped 427%, driven by accelerating demand for artificial intelligence chips.
What this means for Nvidia's future
In recent months, investors have begun to question AI's viability, and some have taken a “wait and see” approach, but the resulting lesson could be costly. One of the most conservative estimates regarding the size of the generative AI market is $1.3 trillion by 2032, according to Bloomberg Intelligence. Cathie Wood, CEO of Ark Invest, is much more optimistic, suggesting that the total addressable market will reach $13 trillion by 2030. The reality is likely to be somewhere in between the two, but the reality is that we simply don't. We know how big the AI market will eventually be.
What we know is this. The deepest pockets of big tech are scrambling to develop a competitor to Nvidia's gold-standard GPU, which has had limited success so far. Furthermore, Nvidia continues to spend heavily on research and development (R&D) in order to keep its AI processors at the forefront. That amounted to nearly $8.7 billion last year, or 14% of its total revenue. With a start of more than a decade and continued significant expenditures on R&D, it will be difficult for its competitors to “beat” Nvidia’s leadership. However, competition is coming, but the size of the market suggests there could be more than one winner.
It's also important to note that the $3 trillion market cap standard is completely arbitrary. Investors would be better off keeping an eye on Nvidia's operating and financial results – which have been consistently excellent – to gain insight into the company's ongoing prospects.
Finally, a note about evaluation. The rise in Nvidia's stock price in recent years has pushed its valuation to an uncomfortable level for many investors. The stock currently sells for 72 times earnings and 38 times sales, which many find scandalous. However, this doesn't take into account Nvidia's triple-digit growth over the previous four quarters, a trajectory that is expected to continue in the current quarter. However, Nvidia's price-to-earnings-to-growth (PEG) ratio – which influences this growth – comes in at less than 1, which is Nvidia's benchmark. Undervalued stock.
Bears will argue that the threat of competition is real, the stock is expensive, and the future of AI is unknown. However, Nvidia is the surest way to claim the windfall that AI represents. In my book, this makes Nvidia stock a buy.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Danny Vina He holds positions at Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Bank of America, Microsoft, and Nvidia. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.
Nvidia reaches $3 trillion market cap before its 10-for-1 stock split. Here's what's next for investors. Originally published by The Motley Fool