Nvidia (NASDAQ: NVDA) has been one of the hottest stocks on the planet in recent times. The shares have soared 2,500% over the past 5 years -- and just this year they've climbed more than 130%. This is thanks to the company's dominance in the high-growth artificial intelligence (AI) chip market. Nvidia's sales of chips and other AI products and services have helped earnings climb into the billions of dollars.
And this momentum may be in its early days considering forecasts for AI growth. The AI market is expected to expand from about $200 billion today to $1 trillion by the end of the decade. As a major player in the space, Nvidia could continue to generate explosive earnings gains. That said, some investors have worried about increasing competition in the market and how that could impact Nvidia's pricing power.
Before you decide to buy or sell this high-profile stock, here are 10 things you need to know.
Image source: Getty Images.
1. The Blackwell launch is on track
Nvidia's next big release is the Blackwell architecture and most powerful chip ever -- a platform that could be a game changer for the company and its customers. The company recently said the launch is on track, quelling rumors about delays. (Nvidia just implemented one change to improve production yields.) The Blackwell production ramp is set to start in the fourth quarter, and the company even predicts "several billion dollars" of Blackwell revenue in that period.
2. Hopper remains a big growth driver
Blackwell is coming, but earlier architecture Hopper isn't going away. Though Blackwell is more powerful, Hopper remains state of the art, and customers, eager to advance their AI projects, are flocking to it. Nvidia's expectation of 80% year-over-year revenue growth in the upcoming quarter is thanks to demand for Hopper, meaning this platform continues to be a key revenue driver for the company.
3. Nvidia AI Enterprise is on its way to a major milestone
Enterprise software will be a significant growth driver, the company has said in the past, and now Nvidia's efforts in this area are bearing fruit. Nvidia AI Enterprise, an "operating system" for companies' AI projects, streamlines the development of generative AI applications. And Nvidia expects its software to finish the year with a $2 billion annual-revenue run rate, "notably contributing to growth," the company says.
4. Growth in China may remain a challenge
Since the U.S. imposed a ban on chip exports to China, Nvidia has seen its revenue from that country drop. The company has developed other chips specifically for China that meet U.S. export requirements, and in the latest earnings report, Nvidia said China was a "significant contributor" to data-center revenue. Still, China is bringing in much less revenue than before the export controls, and the company expects the market to remain highly competitive.
5. More Blackwells are just ahead
Nvidia has said that "other Blackwells" are down the road following the upcoming Blackwell launch, meaning this top-tech company will keep on innovating. Nvidia has pledged to update its graphics processing units (GPUs) on an annual basis. This plan makes me confident about the company maintaining its leadership, and the new releases offer catalysts for stock performance.
6. Gaming is still adding to growth
The data-center business may have become Nvidia's biggest, taking the reins from gaming, but this doesn't mean gaming's growth is over. The segment is still a key contributor, and in the most recent quarter, it posted a 16% increase to more than $2.8 billion. Today, the GeForce NOW library boasts a catalog of more than 2,000 titles for the biggest collection of any cloud-gaming provider.
7. The threat from rivals may be limited
Yes, Nvidia faces competition from others, such as Advanced Micro Devices and Intel. But I don't expect this to hurt Nvidia -- for two reasons. First, market demand is so high that there is room for several participants. And second, Nvidia's focus on innovation, as mentioned above, and the fact that it already is the market leader mean it likely will continue to stay ahead when it comes to chip technology -- and that will make it hard to unseat the company.
8. Two key metrics are soaring
Nvidia's stellar track record when it comes to return on invested capital and free cash flow is a big positive. This shows it's investing wisely, and therefore benefiting from its investments over time, and is highly profitable. As we can see in the chart, below, even prior to the AI boom, Nvidia progressively grew these metrics, showing wise management across the business.
NVDA Return on Invested Capital data by YCharts.
9. Signs of confidence
Nvidia recently completed a 10-for-1 stock split, a move to lower the per-share price after its enormous gain so that a broader range of investors can get in on the stock. The company's board also approved a $50 billion share-repurchase authorization, adding to the remaining $7.5 billion already authorized. These two moves show confidence that the shares still have plenty of room to run.
10. A reasonable valuation
Nvidia isn't the cheapest stock around. But considering the positive points I mention here (and the fact that they outweigh the negative), the stock looks pretty reasonable today at 40 times forward-earnings estimates. And this is down from 50 times earlier this year. All of this means Nvidia, even after its enormous gains, still looks like a solid AI winner to buy and hold.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
