Nvidia (NVDA) has been a top-performing stock for several years, but the AI boom put this chip stock into the spotlight in 2023. Triple-digit year-over-year revenue growth became a regular occurrence each quarter and remains that way today. Some investors may be nervous about a bubble since Nvidia has gained so much, but I remain bullish on this stock and the AI opportunity. That’s because Nvidia is outpacing its competition, capitalizing on the industry’s explosive growth, and continuously innovating to maintain its dominant position.
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As a refresher, Nvidia is known for designing and manufacturing graphics processing units (GPUs) that are widely used in gaming, professional visualization, data centers, and, most notably, artificial intelligence applications.
The Artificial Intelligence Industry’s CAGR
Artificial intelligence is still set to expand meaningfully over the next few years. Data from Grand View Research indicates that the AI industry will maintain a 36.6% CAGR from now until 2030.
While that’s good news for AI companies in general, it’s even better news for Nvidia. That’s because Nvidia is outgrowing the competition, and an expanding industry gives Nvidia more room to expand.
Recent statements from ex-Google (GOOG) (GOOGL) CEO Eric Schmidt revealed that many tech giants are ramping up their AI investments. He mentioned that some companies are ready to commit $20-100 billion in AI infrastructure. Many companies will benefit, but Nvidia will win the most from this development.
Why Companies Rely on Nvidia’s Chips
Nvidia has a vast technology lead over its competitors. Some of its offerings have zero competition and are critical for AI infrastructure. That rare advantage helps Nvidia set high prices for its products and services.
While competitors are creating their own AI chips and resources, Nvidia is developing strong relationships with big tech companies. Nvidia also continues to innovate with new chips so it can constantly remain a few steps ahead of the competition. Even as tech giants create their own AI chips, they continue to work with Nvidia because the company is second to none in a booming industry.
Nvidia is the gateway into an industry that feels as revolutionary as the internet. Tech giants aren’t going to give up on that type of opportunity, even if the cost of entry is high.
Demand Continues to Grow
Observing the guidance issued by other AI companies can give a hint of where Nvidia is heading. Super Micro Computer (SMCI) is a Nvidia partner that has also benefitted from the AI boom, and its Fiscal 2025 outlook should be encouraging for Nvidia investors.
Super Micro generated $14.94 billion in Fiscal 2024 and projects that Fiscal 2025 revenue will range from $26.0 billion to $30.0 billion. After more than doubling its revenue year-over-year in Fiscal 2024, Super Micro is expected to achieve a similar result in Fiscal 2025. The company also mentioned that a Nvidia Blackwell delay won’t have much of an impact on its sales.
Rising demand for Super Micro’s AI products indicates that Nvidia will experience robust demand growth in the upcoming quarters. Nvidia also issued optimistic earnings that suggest more growth is on the way for long-term investors.
Nvidia’s Earnings
Nvidia’s revenue soared by 262% year-over-year in the first quarter of Fiscal 2025. While it’s an incredible number, it’s even more impressive that investors have been conditioned to expect these types of growth rates from Nvidia. Further, net income jumped by 628% year-over-year, resulting in a 57.1% net profit margin.
Nvidia CEO Jensen Huang referred to AI as “the next industrial revolution” in the firm’s Q1 press release. Financials certainly paint that picture, as Nvidia is expected to generate revenue of $28.0 billion in the second quarter of Fiscal 2025, plus or minus 2%.
However, it’s reasonable to assume that Nvidia crushes that guidance. Not only does Supermicro’s full-year guidance point to booming demand for the industry, but Nvidia beat its own guidance in the first quarter.
The AI leader announced during its Q4 FY24 results that it expected to generate $24.0 billion, plus or minus 2%, in Q1 FY25. As a pleasant surprise, Nvidia closed out the first quarter with $26.0 billion in revenue. That figure is 8.3% higher than Nvidia’s guidance. Assuming Nvidia does something like that again, it’s feasible that the company’s total sales exceed $30 billion in Q2 FY25.
Is NVDA Stock a Buy, According to Analysts?
Nvidia is a top stock to buy, according to Wall Street Analysts. Nvidia has earned 37 Buys and four Hold ratings in the past three months, giving it a Strong Buy consensus rating. The average NVDA stock price target suggests 16% upside from current levels. The highest price target of $200 implies that Nvidia can gain an additional 61% from current levels.
The Bottom Line on Nvidia Stock
Nvidia is the unquestionable leader in the artificial intelligence industry. It should be the main winner in the future as the industry maintains a 36.6% CAGR through 2030. The stock has trounced market indices for several years and briefly became the world’s most valuable publicly traded company. Nvidia is likely to reclaim that crown.
Artificial intelligence is an innovative opportunity that Huang compared to the Industrial Revolution. While that comparison comes from Nvidia’s CEO, the billions of dollars that pour into Nvidia’s coffers come from many tech giants that recognize the rising potential of AI. Thus, Nvidia is a promising growth stock that should continue to lead the stock market higher.
