Nvidia (NASDAQ: NVDA) sure is looking for game-changing opportunities in the artificial intelligence (AI) market. This week, the company spilled the beans about a few of its recent success stories in this field. It's enough to drive a nervous man distracted. I mean, Nvidia is nailing down partnerships with a who's-who list of tech-sector heavyweights.
The inveterate graphics processor designer has been busy making moves in the AI space recently. I mean really recently, as the push included a flurry of new partnership announcements at the 2023 version of Nvidia's GPU Technology Conference (GTC). These research collaborations, business deals, and simple but massive AI chip sales could mean big things for the company's future growth.
Nvidia's latest batch of AI deals
Let's take a look at some of this-week's most exciting partnerships. I'm only scratching the surface here, as the company posted too many AI partnerships to mention. Against this backdrop, Nvidia investors should get excited about the company's enormous AI opportunities.
- AWS: The power duo of Nvidia and Amazon.com (NASDAQ: AMZN) is building a scalable, on-demand AI infrastructure for training large machine learning models and building AI applications in the style of OpenAI's ChatGPT. With Nvidia's number-crunching hardware at its side, AWS is ready to train, operate, and update the next generation of generative AI tools.
- Adobe (NASDAQ: ADBE): The two companies are collaborating on advanced generative AI models for Adobe's Creative Cloud flagship products. Future versions of creative productivity tools like Photoshop, Premiere Pro, and After Effects will include lots of AI-driven editing features. Click, click, drag -- suddenly an army of photorealistic trolls goes strolling down Broadway and all the yellow cabs are green. And Nvidia provides the computing horsepower that lets Adobe pull off these eye-popping tricks.
- Google Cloud: Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) Google Cloud platform is the first cloud services provider to give clients access to Nvidia's L4 Tensor Core GPU. This processor was designed to manage AI-related workloads with extremely high performance and low power usage. This hardware is especially useful for building, tuning, and deploying large, generative AI models.
- Microsoft (NASDAQ: MSFT): Nvidia is making DGX Cloud, an AI supercomputing service, available on Microsoft's Azure Cloud. This will help enterprises digitalize their day-to-day operations, jump into the industrial metaverse, and train generative AI systems. Yes, this theme keeps coming back. Nvidia wants to provide the training hardware for the largest generative AI tools.
- AT&T (NYSE: T): AT&T is the first telecommunications provider to explore the use of Nvidia's full suite of AI offerings, including the Nvidia RAPIDS Accelerator for the Apache Spark distributed computing platform and Nvidia cuOpt for real-time vehicle routing and optimization. As expected from a telecom giant with networking assets everywhere, Ma Bell is putting Nvidia's AI products to work in edge computing and large-scale network traffic management.
AI ambitions can justify Nvidia's lofty price tag
Nvidia is no spring chicken. With a market cap of more than $640 billion, it takes a lot of positive business energy to move the needle much further. Yet your average analyst expects Nvidia's bottom-line profits to soar at a compound annual growth rate (CAGR) of 21% over the next five years.
I realize that analyst forecasts may be off the mark and that Nvidia must live up to these sky-high expectations in order to support the stock's nosebleed-inducing valuation. The company's shares are changing hands at 150 times trailing earnings, 24 times sales, and 188 times free cash flow today. These ratios are among the priciest valuations in the S&P 500 index. In particular, Nvidia is the most expensive S&P 500 stock of all as measured by price to sales.
With just the good old graphics processors in its holster, Nvidia would never be worthy of these Icarian stock prices. But the AI market is going places, and Nvidia is making sure that it will be along for the ride.
That's why investors have reason to be optimistic about Nvidia's AI future, even if the starting price is high. The company's AI ambitions are off the charts, and these recent partnership announcements should solidify the company's position as a leader in the space.
Nvidia is an AI-driven buy -- for some investors
With household names like AWS, Adobe, Google Cloud, Microsoft, and AT&T all teaming up with this innovator, the possibilities for what Nvidia can achieve in the AI business over the long haul are virtually endless. Just keep in mind that the company must fight off challenges from arch-rivals Advanced Micro Devices and Intel at every turn, and that other chip designers could stake out claims to specific niche markets within the AI opportunity.
Nvidia has work to do, and the stock is priced for perfection. In other words, be prepared for speed bumps, turbulence, and setbacks along the way -- the ride may not be smooth. However, there should be many years of game-changing growth left in Nvidia's tank. For a growth investor with a healthy appetite for short-term risk, that combination may work out to be a no-brainer buy.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Alphabet, Amazon.com, Intel, and Nvidia. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Alphabet, Amazon.com, Intel, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2024 $420 calls on Adobe, long January 2025 $45 calls on Intel, and short January 2024 $430 calls on Adobe. The Motley Fool has a disclosure policy.
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