Having just previewed its next generation artificial intelligence microchips, Nvidia (NASDAQ:NVDA) stock looks likely to dominate the tech sector for the foreseeable future.
NVDA stock continues to be a huge outperformer, having increased nearly 90% this year and gained 245% in the past 12 months. Nvidia’s shares are the second best performer in the benchmark S&P 500 index after Super Micro Computer (NASDAQ:SMCI), which Nvidia relies on for the servers that run its powerful AI microchips and semiconductors. While NVDA stock has run far, there’s every reason to believe the gains can continue.
The Blackwell Series
At its just completed developer conference, Nvidia unveiled next generation AI chips called the Blackwell series. The first Blackwell chip is called the GB200 and will ship later this year. Every two years Nvidia updates its graphics processing unit (GPU) architecture, initiating a big jump in performance. The company says that its Blackwell processors, such as the GB200, offer a huge performance upgrade for AI companies.
The new chips are being introduced as companies ranging from Microsoft (NASDAQ:MSFT) to Meta Platforms (NASDAQ:META) struggle to get their hands on Nvidia’s current generation of H100 microchips that power AI models. The additional processing power found in the Blackwell line of chips will enable companies to train bigger and more sophisticated AI models going forward.
Evolving Beyond Microchips
While unveiling the new Blackwell series during a townhall presentation, Nvidia CEO Jensen Huang also introduced revenue-generating software called Nvidia Inference Microservice (NIM), which will be added to the company’s enterprise software subscriptions. NIM will make it easier for companies to deploy AI and provide a new revenue stream for Nvidia.
Huang stressed that Nvidia is moving to become less of a microchip designer and more of a platform provider, similar to the business models adopted by Microsoft and Apple (NASDAQ:AAPL). Moving forward, Nvidia wants to become a platform on which other companies can build software. “Blackwell’s not a chip, it’s the name of a platform,” said Huang at the developer conference, which had 16,000 people in attendance.
White Hot Demand
The new microchips and software should help Nvidia maintain its dominant position in the white hot field of AI. Currently, Nvidia makes 80% of the microchips and semiconductors that power AI models and applications worldwide. There had been concerns that Nvidia’s market share could decline as new microchips from rivals such as Advanced Micro Devices (NASDAQ:AMD) come to market.
The chips and software unveiled at the developer conference have done a lot to allay those concerns. AMD’s stock declined 7% in the two days after Nvidia’s Blackwell chips and NIM software platform were announced. The biggest challenge facing Nvidia going forward appears to be keeping up with global demand for its chips and semiconductors that power AI applications large and small.
Despite its sales growing 265% and its profits increasing 769% year-over-year in the final quarter of 2023, Nvidia has forecast even more growth in the current first quarter of 2024.
Buy NVDA Stock
Nvidia is now the third largest publicly traded company in the world based on market capitalization, behind only Microsoft and Apple. The company’s growth and its share price appreciation have been astonishing. But as impressive as the gains have been, there looks to be more in-store as Nvidia introduces new products, stays ahead of its competitors, and cements its dominant position in the market for AI chips. NVDA stock is a buy.
On the date of publication, Joel Baglole held long positions in NVDA, MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
