Nvidia (NASDAQ: NVDA) may be the biggest early winner of the artificial intelligence (AI) boom. The tech giant sells the world’s most powerful chip along with a complete portfolio of AI products and services, making it the “go to” company for those launching an AI program. And this has produced big results when it comes to earnings and share price performance.
The chip designer’s shares have soared 2,600% over the past five years and are heading for a 183% increase this year. This is as earnings have taken off. Nvidia has reported triple-digit growth in revenue and profit quarter after quarter, and sales to AI customers make up the lion’s share of revenue — at 87% in the most recent quarter.
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Nvidia has generated a total of $48.9 billion in data center sales in the first and second quarters of this year — this is compared to $14.6 billion from the data center business during the same period last year. This sounds fantastic, but data center sales aren’t the only way AI will boost Nvidia in the coming years. Let’s check out another — and completely different — way AI will supercharge this AI giant’s earnings.
Nvidia’s AI chip dominance
So, first a bit of detail about Nvidia’s path so far and what to expect moving forward. The company holds 80% share of the AI chip market due to the top performance of its graphics processing units (GPUs). These powerful chips mainly served the gaming industry several years ago, but their ability to process many tasks at once helped them broaden their reach into other areas — including AI.
And with the AI boom, sales of Nvidia’s GPUs and related products took off. The company’s $30 billion in total revenue in the most recent quarter is higher than the company’s annual revenue as recently as in the 2023 fiscal year.
There’s reason to be optimistic that this will continue thanks to growth in the general AI market and Nvidia’s focus on innovation. Analysts predict today’s $200 billion AI market will expand to $1 trillion by the end of the decade — if this happens, Nvidia, as a leading seller of essential and top performing AI products and services, should benefit. And Nvidia pledges to update its GPUs on an annual basis, a move that should keep it ahead of the competition.
Now, let’s consider the second way AI will supercharge Nvidia’s earnings. This is through the rollout of AI across the entire company. So Nvidia isn’t only a maker of AI — like its customers, it’s a user of AI. This should help Nvidia streamline processes, become more efficient, and lower costs over the long term.
Nvidia’s use of AI
Nvidia already is using AI in the areas of chip design and supply chain management, chief executive officer Jensen Huang said at the Gartner IT Symposium, according to a Fierce Network report. Huang added that, in the future, the company would have 50,000 employees and more than 100 million AI assistants. Today, Nvidia has about 30,000 employees, so the company does count on significantly growing its human talent base — but the explosion higher of AI assistants should make this workforce as a whole much more productive and cost-efficient than a human-only one.
This is great news for Nvidia’s gross margin, which already today — in earlier days of AI usage — has reached beyond 70%. Nvidia aims to report gross margin in the mid-70% range in the third quarter and for the full year. Over the long term, with AI assistants making up an enormous part of the company’s workforce, Nvidia should be able to keep margins wide. This, along with revenue growth thanks to innovation and general demand, could power earnings higher over the long term.
So, yes, Nvidia is a winner in this potential AI revolution thanks to its sales of products and services to customers, but the benefits to the bottom line don’t stop there. Nvidia, as a user of its own AI tools, is on the path to improving its processes, making them faster, and keeping costs down. All of this also should play a significant role in earnings growth moving forward — and this makes Nvidia a compelling AI stock to buy now and hold onto for the long term as this supercharged growth story unfolds.
https://finance.yahoo.com/news/nvidia-generated-nearly-50-billion-080500300.html
