Tesla Inc (NASDAQ:TSLA) CEO Elon Musk likes to stir up controversy — just look at what he’s said about artificial intelligence. For the most part, he thinks this technology is downright scary, and could even become a threat to mankind! Interestingly, he is not alone. Other notable people such as Bill Gates and even Stephen Hawking have been sounding the alarm bells as well.
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What are we to make about this? It’s important to keep in mind that predicting the future is no easy feat, and even some of the greatest minds in tech can get things very wrong.
In the meantime, there’s something else to consider: Regardless of the long-term impact on society, AI represents a pretty good opportunity for investors, which is also good news for NVIDIA Corporation (NASDAQ:NVDA), a trailblazer in the artificial intelligence industry.
Nvidia Stock and AI
Consider a recent report from International Data Corporation (IDC). The firm’s analysts forecast that global revenues for cognitive and AI systems will hit $12.5 billion this year, up a sizzling 59.3% on a year-over-year basis. In fact, for the next three years, the compound annual growth rate is expected to be about 54.4%.
According to IDC’s research director David Schubmehl, “Intelligent applications based on cognitive computing, artificial intelligence, and deep learning are the next wave of technology transforming how consumers and enterprises work, learn, and play.”
Additionally, Infosys Ltd ADR (NYSE:INFY) has recently put together another interesting report. Based on a survey of 1,600 business leaders across the world, there is a “clear link between an organization’s revenue growth and its AI maturity.”
In light of all this, it should be no surprise that top tech operators such as Alphabet Inc (NASDAQ:GOOGL,NASDAQ:GOOG), Microsoft Corporation (NASDAQ:MSFT), Facebook Inc (NASDAQ:FB) and salesforce.com, inc. (NYSE:CRM) are pouring huge sums into AI.
AI Innovations From Nvidia
For NVDA stock, the situation is a perfect storm. The company has the advantage of being the innovator in the critical market for graphics processing units. Originally focused on gaming, NVDA chips have proven to be quite adept with AI, which requires intensive processing of enormous amounts of data. In fact, AI often requires the use of vision systems, such as with autonomous vehicles and facial recognition.
Applications for Nvidia chips are extensive. Here’s a sample of some use cases:
- Athelas: This startup uses AI for a portable blood diagnostic device that can measure white cell counts in minutes. There is no need to go to a doctor’s office, which means substantial cost savings.
- Deep Instinct: The company is a next-generation cybersecurity operator that leverages AI to help identify millions of new malware threats.
- Miovision Technologies: The company has developed systems to crunch data from video streams to improve the flow of city traffic, such as with optimizing highway lights.
Perhaps the biggest driver for NVDA stock is the market for self-driving vehicles. The company’s platform, called Drive PX 2, has been gaining significant traction. The key is that the technology is able to process a huge number of images with a high degree of accuracy.
Customers include Volvo AB (ADR) (OTCMKTS:VOLVY), Daimler AG’s (OTCMKTS:DDAIF) Mercedes-Benz, AUDI AG NPV (OTCMKTS:AUDVF), Toyota Motor Corp (ADR)(NYSE:TM) and Tesla. According to NVDA’s own estimates, the market opportunity is forecasted to hit about $8 billion by 2025.
Bottom Line on NVDA Stock
While AI currently represents only a small portion of NVDA’s sales (note that about 7% comes from the auto business), this just means there is tremendous growth potential.
In the meantime, the company’s other segments are continuing to ramp at impressive rates. During the latest quarter, revenue spiked 48% to $1.94 billion and earnings came to 79 cents on NVDA stock, or about $507 million.
And, of course, shares are certainly sporting a hefty multiple. Keep in mind that the forward price-to-earnings ratio on NVDA stock is about 47x. But, then again, in light of the huge potential from the AI market, and management’s disciplined execution, a premium is certainly warranted.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.