AI stocks, particularly those traded on the Nasdaq, have excelled since the introduction of ChatGPT in early 2023. Despite market volatility tied to long-term interest rates, AI firms are expected to sustain innovation and profit growth across various sectors, offering investment prospects for equity investors. This is the new paradigm investors are working within, and Nvidia (NASDAQ:NVDA) continues to be the chief pure-play option for many investors looking at this sector.
Indeed, while NVDA stock’s impressive performance this year has left most of its growth peers in the dust, the question is whether this stock can continue to provide these gains moving forward. At some point, even the best growth stocks take on valuations that are difficult, or impossible, to grow into.
Let’s dive into whether NVDA stock can still be the ticket to success for long-term investors. Indeed, there are plenty of bears calling for a reversion toward longer-term valuation ranges for this company, and its peers.
Plenty of Positive News to Watch
Russia recently announced plans to construct up to ten supercomputers by 2030, potentially equipped with 10,000 to 15,000 Nvidia H100 GPUs. This computing power rivals that used for Chat GPT’s training. Such a system could potentially reach a level of computing achieved only by the U.S. so far. Led by the ‘Trusted Infrastructure’ team, this Russian initiative seeks to advance computational capabilities, yet it relies on American company Nvidia for the desired GPUs. While not great for Western dominance of this space, this digital arms race could benefit Nvidia, and is a factor some investors are putting on their radar now.
On a sadder note, Nvidia made the decision to canceled its upcoming two-day AI Summit in Israel, originally set for October 15-16 at EXPO Tel Aviv. The decision was made due to safety concerns for participants. The event aimed to bring together AI hardware and software researchers and developers to explore accelerated computing and future possibilities. Israel, with its thriving AI community, was an ideal location for the summit.
NVDA’s Future Will Be Bright
Nvidia’s AI strategy, focused on GPU sales, minimizes risk and maximizes market potential. Both successful and unsuccessful clients rely on its chips, and this demand has positively impacted recent earnings.
Nvidia reported record Q2 2024 revenue of $13.5 billion, up 88% year-over-year. The company’s data center segment saw a 171% increase due to high demand for advanced enterprise GPUs for AI applications. Other core segments like gaming and automotive showed growth potential for the future.
Those who believe in the growth potential of AI may consider the company’s forward-looking prospects even better, despite Nvidia’s size. We’ll have to see how things play out, but it’s clear that NVDA stock has surprised in terms of its growth in the past. Perhaps this stock is undervalued, relative to its growth potential, at current levels. That’s something for investors to ponder, at least, considering the potential catalysts on the horizon for Nvidia and its peers.
Keep an Eye on Nvidia’s Other Segments
The long-term AI catalyst is clearly the factor investors are bickering over, and what will drive the majority of the move with this stock moving forward. However, it’s not the entire story when it comes to Nvidia’s business model.
Nvidia’s gaming segment, which includes GPU sales for PCs, consoles and cryptocurrency mining, faces challenges due to economic factors. However, it’s a cyclical industry that could rebound. In the long term, growing GPU demands in video games, augmented reality and virtual reality may support Nvidia’s chips. Nvidia also aims to diversify with its Avatar Cloud engine for conversational AI in games.
Additionally, NVIDIA’s versatile robotics solutions encompass physical and camera-based approaches, empowering diverse applications. Their platform, NVIDIA Metropolis, offers scalable video analytics for settings like intersections, airports and retail. Initially renowned for gaming, NVIDIA’s adaptability led to a successful foray into robotics with the 2015 introduction of Jetson.
AI might impact Nvidia’s automotive sector, focusing on self-driving software as a service. Although fully autonomous driving is a work in progress, McKinsey & Company predicts it could yield $300-400 billion in yearly revenue by 2035, offering early adopters significant potential.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
