NVDA

This Is What the Latest Artificial Intelligence (AI) Earnings Reports Say About Nvidia Stock's Future

The artificial intelligence (AI) market has continued gaining traction in 2024 as companies spend huge amounts of money on building up infrastructure so that they don't fall behind in the race to deploy and integrate AI applications.

According to one estimate, global spending on AI is expected to cross a whopping $200 billion this year, and chipmakers such as Nvidia (NASDAQ: NVDA) have allowed investors to get rich from this massive splurge. Looking ahead, the market for semiconductors powering AI applications is expected to deliver a whopping $341 billion in annual revenue in 2033. The latest developments in the AI chip market signal that Nvidia continues to remain the best bet for investors to capitalize on this tremendous opportunity.

AMD's and Intel's earnings reports make it clear that they are far behind Nvidia

Nvidia enjoyed an early start in the AI chip market. Its A100 processors were used for training ChatGPT, the chatbot that kicked off the AI revolution toward the end of 2022. The company's AI GPUs (graphics processing units) gained immense popularity and its H100 processor became a runaway success.

Rivals such as Advanced Micro Devices and Intel were left to play catch up as they didn't have a chip powerful enough to compete with Nvidia's H100. Both companies were behind Nvidia by at least a year on the AI chip development curve. This is evident from the fact that AMD's rival to Nvidia's H100, the MI300X accelerator, was launched in December 2023. Meanwhile, Intel's H100 opponent, the Gaudi 3, was announced last month and will start shipping later this year.

Nvidia's H100 went into full production in September 2022. This lead has allowed Nvidia to exercise a solid grip over the AI chip market and also explains why its competitors' latest offerings aren't gaining much traction. For instance, AMD sees its AI GPU sales hitting at least $4 billion in 2024. Intel is further behind and expects the Gaudi 3 launch to help it generate $500 million in AI chip sales in the second half of 2024.

Nvidia is leagues ahead of both Intel and AMD considering that it sold $47.5 billion worth of data center chips in fiscal 2024, an increase of 217% from the previous year. This also indicates that AMD and Intel's new chips, which were supposed to help them cut into Nvidia's 90%-plus market share, aren't making much of a dent in the latter's dominant position.

One of the reasons why that's the case is because Nvidia has cornered a huge chunk of the supply of AI chips from its foundry partner, Taiwan Semiconductor Manufacturing (popularly known as TSMC). More specifically, Nvidia reportedly commands half of TSMC's advanced chip packaging capacity that's deployed for manufacturing AI chips.

What's more, Nvidia is all set to widen the technology gap with its rivals with the launch of new AI GPUs based on the Blackwell architecture later this year. Market research company TrendForce expects Nvidia to secure a dedicated chip supply from TSMC for its next-generation chips.

TSMC's monthly capacity to make advanced chips is expected to increase 150% this year to 40,000 wafers a month. By next year, TSMC is expected to double its capacity once again. The key thing to note here is that Nvidia is expected to consume more than half of TSMC's advanced chip packaging capacity. So, Nvidia's tight control over TSMC's advanced chip supply is going to help it keep the likes of Intel and AMD at bay.

Nvidia's AI lead is set to translate into terrific growth

Investment bank UBS recently increased its Nvidia price target to $1,150 from $1,100 citing the impending arrival of its next-generation AI GPUs. UBS is expecting the company to deliver $175 billion in revenue in 2025 (which will coincide with its fiscal 2026), along with earnings of $41 per share. Those estimates point toward a massive jump compared to Nvidia's fiscal 2024 revenue of $60.9 billion and $12.96 per share in earnings.

Assuming Nvidia does hit $41 per share in earnings this fiscal year and trades at 30 times earnings, in line with the Nasdaq-100 index's earnings multiple (using the index as a proxy for tech stocks), its stock price could hit $1,230 within a couple of years. That would be a 36% jump from current levels. However, Nvidia currently trades at 74 times earnings, and it is likely to trade at a premium valuation in the future as well thanks to its AI chip dominance.

So, it won't be surprising to see this AI stock delivering much stronger gains than what analysts are expecting, which is why it would be a good idea to buy Nvidia following the latest earnings reports from its peers.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 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.

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