NVIDIA (NASDAQ: NVDA) It’s been one of the best-performing stocks of the past five years, up an astounding 2,430%. Given this rally, the question many investors are now asking is whether it’s too late for new investors to buy in and realize above-average returns.
Let’s take a look at four reasons why Nvidia stock is worth buying, even if there’s no tomorrow.
1. AI infrastructure construction is just beginning
Nvidia is a big beneficiary of the growing interest. Artificial Intelligence (AI),Because its graphics processing unit (GPU) is the backbone of the computer server infrastructure used for training, Large-scale language models (LLM) and performs AI inference. So far, demand for the company’s GPUs and other chips has been insatiable as cloud-computing companies and other tech giants ramp up AI-related spending to get ahead of the demand curve.
Concerns are beginning to emerge that companies are overbuilding the production capacity they need, but most are showing no signs of slowing down their spending. Meta Platform and alphabet The biggest risk associated with companies’ AI spending is missing out on huge potential opportunities due to underinvestment, they said.
Meanwhile, Meta has said that training the new Llama 4 LLM could require nearly 10 times the computing power of Llama 3. To handle that workload, 160,000 GPUs will be needed, compared to 16,000 for Llama 3. Meanwhile, xAI’s latest Grok 3 LLM is predicted to require 100,000 GPUs, up from the 20,000 used in Grok 2.
As LLM advances, the exponential need for more computing power and GPUs represents a long period of growth potential for Nvidia.
2. Nvidia’s software division gives the company a broad competitive advantage
Nvidia isn’t the only company that produces GPUs. Advanced Micro Devices (NASDAQ: AMD) There are many companies operating in this space, with others eager to enter the huge market currently dominated by Nvidia.
The company has been able to achieve this dominance because its chips have long ago become the industry standard thanks to the CUDA software platform. This software platform was created by Nvidia in 2006 to allow developers to directly program NVIDIA’s GPUs. The company gave away the software program for free to increase chip sales. As a result, CUDA has become the primary software program for developers to learn to program GPUs.
Reliance on CUDA helped the company build a broad wall of defense around its GPUs. AMD has since developed its own software platform, ROCm, but it is not considered as superior to CUDA, and retraining personnel on ROCm and other software platforms is time-consuming and expensive.
CUDA helps Nvidia control the entire GPU stack, from the hardware to the software to the necessary firmware updates, while all of its technologies are backwards compatible, creating a seamless transition for customers to build out their AI infrastructure without having to worry about expensive hardware purchased a few years ago becoming obsolete.
Nvidia’s strength has helped it grab more than 80% share of the GPU market. In the second quarter, revenue from its data center GPU business rose 154% year over year to $26.2 billion. By comparison, revenue from AMD’s data center business grew 115% to $2.8 billion.
3. Nvidia accelerated its innovation cycle
In addition to the broad wall of defense it has built with its CUDA software platform, Nvidia has also accelerated its innovation cycle. The company is now on track to introduce updated GPU architecture platforms nearly every year, compared to two years ago. The company is currently seeing strong demand for its Hopper GPU architecture platform, introduced in 2022. The company plans to start shipping chips designed with its new Blackwell GPU architecture in the third quarter of this year (a short delay meant they weren’t introduced in the second quarter).
Meanwhile, Nvidia has already announced plans to introduce its next-generation Rubin architecture in early 2026. The release schedule also indicates that the Ultra platform will be released in 2027. As mentioned above, all platforms will be backwards compatible with CUDA, so customers won’t have to worry about their chips becoming obsolete.
This accelerated innovation cycle enables the company to do two main things: First, it allows it to maintain its technological edge on the hardware side as more competitors enter the market. Second, continued innovation allows the company to maintain its pricing power; Nvidia’s chips are expensive and have high gross margins, so it needs to stay on the cutting edge, which it clearly aims to do.
4. Nvidia stock is still relatively cheap based on several valuation metrics.
With a forward price-to-earnings (P/E) ratio of about 27 and a PEG (price-to-earnings growth) ratio of just over 0.7, Nvidia’s stock remains cheap for a company with triple-digit revenue growth. That growth can’t continue forever, but given the exponential computing power and broad defensive wall needed to advance AI, Nvidia still has a lot of room to grow.
With the stock price recently falling from its highs, now seems like a great time to buy Nvidia stock like there’s no tomorrow.
Should I invest $1,000 in Nvidia right now?
Before you buy Nvidia stock, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy now… and Nvidia wasn’t among them. The 10 stocks selected have the potential to generate big gains over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That comes to $656,938.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times First S&P 500 recovery since 2002*.
*Stock Advisor returns as of September 3, 2024
Randi Zuckerberg, a former director of market development and public relations at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, serves on Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, serves on Motley Fool’s board of directors. Jeffrey Saylor The Motley Fool has invested in and recommends Advanced Micro Devices, Alphabet, Meta Platforms, and NVIDIA. The Motley Fool Disclosure Policy.
4 reasons to buy Nvidia stock like there’s no tomorrow Originally published on The Motley Fool
