Will artificial intelligence (AI) enable Nvidia to crush Apple and Microsoft and become the most valuable stock of the “Magnificent Seven”?

By | March 31, 2024

Nvidia (NASDAQ: NVDA) has become the most popular player in the field of artificial intelligence (AI). The advanced graphics processing units (GPUs) are the main hardware element of the servers that run advanced AI applications.

In the category of particularly high-margin GPUs tailored to running AI and other accelerated computing applications, Nvidia currently has about 90% of the market. While competitors, including Advanced micro devices And Inteltake steps to expand their capabilities in ultra-high-performance GPUs, many analysts expect Nvidia to maintain its incredible strength in this category.

With incredible performance under its belt and management guidance for further explosive growth, Nvidia stock is up 240% over the past year and up 82% so far in 2024.

These gains have brought Nvidia’s market capitalization to approximately $2.27 trillion. It is now the third most valuable company in the world and the third most valuable member of the ‘Magnificent Seven’. Applecurrently in second place, has a market cap of $2.65 trillion, while top dog Microsoft is valued at around $3.12 trillion.

Could Nvidia soon be the most valuable company in the world?

AI’s most influential player is reaping the rewards

Beginning in late 2022, incredible leaps forward in artificial intelligence technologies began to occur rapidly. That progress increased dramatically in 2023 and shows no signs of slowing this year.

As companies and institutions have taken steps to gain prominence in the AI ​​space, demand for Nvidia’s most advanced processors has skyrocketed. Turnover and profit have shot through the roof.

In the fourth quarter of last year, the company’s revenue grew 265% year over year to $22.16 billion. Thanks to the dramatic performance acceleration in the second half of 2023, Nvidia’s annual revenue rose 126% to $60.9 billion.

NVDA Net Income (TTM) Chart

NVDA Net Income (TTM) Chart

Nvidia posted a net profit of $29.76 billion last year, equivalent to 49% of its total revenue. That’s an incredible net profit margin for a hardware-focused company; these often have lower margins compared to software-oriented companies due to the higher incremental costs associated with the production of physical goods.

But the company’s incredible margins reflect how strong demand for its GPUs is right now. It’s reasonable to expect Nvidia’s incredible growth to moderate, but it looks like the company will at least grow much faster than Apple and Microsoft in the coming years.

AAPL Net Income (TTM) ChartAAPL Net Income (TTM) Chart

AAPL Net Income (TTM) Chart

Apple and Microsoft still generate much more revenue and net profit than Nvidia. On the other hand, the chip powerhouse appears well positioned to remain the biggest winner in the AI ​​revolution, and has grown much faster than those bigger tech giants.

By comparison, Microsoft grew its revenue by roughly 10% over the past twelve months and increased its net profit by 20%. Meanwhile, Apple’s revenue over that stretch was flat, although net profit rose 7%.

If demand for AI services continues to rise dramatically, there is a good chance that Nvidia will surpass Apple’s market capitalization within five years and take the title of world’s most valuable company from Microsoft. While the GPU leader’s business has historically been shaped by cyclical trends, the company still appears to be in the early stages of capitalizing on the unfolding AI revolution.

Right now, Nvidia is benefiting from the emergence of an unprecedented new technology – and that means predicting its performance over the next five years involves a heavy dose of speculation. But given the incredible sales and earnings momentum and overall excitement in the artificial intelligence applications market, it wouldn’t be shocking to see Nvidia claim the title of the world’s most valuable company.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Apple, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft , and briefly May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

Will artificial intelligence (AI) enable Nvidia to crush Apple and Microsoft and become the most valuable stock of the “Magnificent Seven”? was originally published by The Motley Fool

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