Nvidia Stock Analysis: 3 Reasons to Bet on NVDA in This Shifting AI Landscape

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Nvidia (NASDAQ:NVDA) remains the world’s leading high-performance semiconductor and GPU maker. NVDA stock has surged because of its focus on AI. NVDA stock has dropped about 15% from its peak. This is the sort of decline many consider a healthy correction.

If macro forces increase and investors worry about Nvidia’s clientele’s buying power, this stock may face more downside pressure. That’s the downside of this stock, but there are reasons to be bullish on this high-growth name. Here are three.

Nvidia GPUs Are Crucial to AI

Let’s start out by stating the obvious. Nvidia’s GPUs and its software suite are integral to most developers and companies operating in the AI world.

One could make the argument that without Nvidia, many of the advancements we’ve seen in recent years would simply not have been possible.

I think that’s true. And it’s clear that companies are stepping up to the plate and adding to their portions when ordering from Nvidia’s menu.

Meta Platforms (NASDAQ:META) has been among Nvidia’s largest recent customers of its H100 GPUs, recently unveiling plans to buy more than 350,000 Nvidia H100 GPUs.

This move will raise the company’s expected capex bill to $40 billion in 2024, and also led to the company’s recent stock price drop.

However, it’s a trend that’s sticky, with other companies such as Elon Musk’ Tesla (NASDAQ:TSLA) announcing similar orders for up to 85,000 of Nvidia’s chips for its AI-related projects like autonomous driving.

Investors should stay tuned on May 22, when Nvidia will announce its Q1 2024 earnings report. Customer feedback has guided Nvidia’s supply chain and volume planning, indicating potential revenue increases.

Like its megacap peers, Nvidia struggled to meet data center demand because of capacity constraints. The need for CoWoS technology from Taiwan Semiconductor also helped Nvidia’s ability to deliver AI chips.

If the company is able to better meet demand in the quarters to come, it’s not entirely out of the question to see growth accelerate from current insane levels.

More AI Spending Will Boost NVDA Stock

Major tech firms have invested hundreds of billions of dollars in the race for AI dominance, anticipating significant revenue growth by leveraging vast data sets for various applications.

Big investments in cloud computing infrastructure, managed by companies like Google Cloud, Microsoft Azure, and Amazon Web Services, enable access to vast data sets for AI.

These hyperscale cloud providers face soaring demand and high costs yet commit billions to AI innovation.

Capital expenditures are pivotal for companies looking to make these AI investments, solidifying Nvidia’s market dominance.

Nvidia’s CEO projects a $250 billion annual growth in data center spending, remaining indifferent to potential challengers disrupting the market for its core clientele. 

CEO Jensen Huang likened Nvidia’s role to those who profited from selling tools in the California gold rush, highlighting their significant share in the market of the “picks and shovels” used in this space.

Leading AI Player

Nvidia, holding an estimated 80% share in AI processors, introduced its new Blackwell GPU architecture at the GTC event. The architecture could cost 40% more than current H100 chips, retailing for $30,000 to $40,000 each. 

This explains other significant capital spending by Nvidia’s customers in the Magnificent Seven.

According to Alphabet CEO Sundar Pichai, their company expects a $50 billion capex for 2024 and $57 billion next year.

He also highlighted Google’s plans to invest more on high-edge technical infrastructure during its April 25 event.

Google’s first-quarter capex totaled $12 billion, nearly double from the previous year, mainly allocated to servers and data centers. Microsoft plans a $50 billion capex for the upcoming fiscal year, following a surge to $14 billion in the third quarter.

Microsoft CEO Satya Nadella informed investors on April 25 of their long-term commitment to leading AI through capital allocation. In addition, Amazon CFO Brian Olsavsky stated on the latestearnings callthat capex is expected to increase, particularly for expanding AWS regions and generative AI projects.

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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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