There's a compelling argument that 2023 might be the year that artificial intelligence (AI) finally hits the mainstream. Recent advances in the field of generative AI have resulted in AI systems that can summarize text, write poems, successfully complete complicated tests, and even create works of art.
These developments have sent investors scrambling to invest in the most promising AI stocks they can find and one of the principal beneficiaries thus far has been Nvidia (NASDAQ: NVDA).
The semiconductor specialist supplies the processors with the computational horsepower necessary to train and run these enormous AI models. Nvidia's graphics processing units (GPUs) enable parallel processing -- or the ability to run a magnitude of complex mathematical computations simultaneously -- which makes them the gold standard for speeding data through the ether.
However, Elon Musk believes the company's dominance is in jeopardy.
Image source: Getty Images.
The adoption of AI is accelerating
Musk knows a thing or two about technology. The tech visionary is the CEO of electric vehicle maker Tesla, owner of Twitter, and founder of The Boring company and SpaceX. Given his tech credentials and pedigree, when Musk talks technology, people tend to listen.
Like many technology companies, Nvidia was hit hard by the macroeconomic headwinds that prevailed over the past 18 months, as demand for its processors fell off a cliff. So far this year, however, Nvidia stock has been on fire, gaining 163%, as advances in AI has GPUs flying off the shelves faster than Nvidia can make them. As a result, the company ramped up production to meet the accelerating demand. In fact, management has forecast a 64% year-over-year increase in sales in the current quarter as the adoption of AI ramps up.
Musk believes this gravy train won't last.
A near monopoly
Part of the reason Nvidia has been so successful is that its GPUs are the undisputed leader in market for processors used in machine learning, and by a wide margin. In fact, some industry watchers believe the company has a near monopoly when it comes to the AI chip market. While estimates vary, Nvidia maintains a 95% market share for the processors used for this branch of AI, according to data compiled by New Street Research.
It's this near monopoly that Musk credits with Nvidia's recent performance, but the enigmatic entrepreneur believes the good times won't last.
Adam D'Angelo, CEO of social question and answer website Quora, addressed the adoption of AI, noting that many are underestimating the current level of demand, due to a shortage of the chips used to run AI systems. Musk agreed, responding with this stark warning for Nvidia:
True. Also, many other NN accelerator chips are also under development.
-- Elon Musk (@elonmusk) June 7, 2023
Nvidia will not have a monopoly on large-scale training & inference forever.
Musk makes a valid point regarding his belief that this AI chip monopoly won't last. That said, there's a reason that Nvidia has had a lock on the AI chip market -- thus far, no one has created a processor that's better suited to the unique needs of AI. Rivals including Advanced Micro Devices and Intel have been trying for years to come up with a better solution, but to no avail. Even Alphabet has tried its hand, developing the Tensor processing unit (TPU) with some degree of success, but Nvidia's relentless pace of innovation generally leapfrogs Google's development in short order.
A large and growing market
No one really knows how big the AI market will grow in the coming years, but make no mistake: the opportunity is vast. Ark Investment Management recently released its Big Ideas 2023 report, which estimates that AI software could generate $14 trillion in revenue by 2030. Investment bank Morgan Stanley was even more bullish, placing the economic impact of AI at roughly $15.7 trillion during the same timeframe.
Given the magnitude of the opportunity, there could be plenty of winners from here, including Nvidia.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Danny Vena has positions in Alphabet, Nvidia, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel and long January 2025 $45 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.
