Nvidia could benefit even more from AI in the future…
Nvidia (NVDA -1.36%) could be the biggest early winner of the artificial intelligence (AI) boom. The technology giant sells the world’s most powerful chips and a complete portfolio of AI products and services, making it the go-to company for companies launching AI programs. And this has paid off big in terms of earnings and share price performance.
The chip designer’s stock has soared 2,600% over the past five years and is on track to rise 183% this year. This is because earnings are on track. Nvidia has reported triple-digit revenue and profit growth every quarter, with sales to AI customers making up the majority of revenue, 87% in the most recent quarter.
Nvidia generated a total of $48.9 billion in data center revenue in the first and second quarters of this year. This compares to data center sales of $14.6 billion in the year-ago period. While this sounds great, data center sales aren’t the only way AI will boost Nvidia in the coming years. Let’s check out another and very different way in which AI can significantly increase revenue for this AI giant.
Image source: Getty Images.
Advantages of Nvidia’s AI chips
So let’s start with a little more detail about Nvidia’s history and expectations for the future. The company holds an 80% share of the AI chip market thanks to its top-notch graphics processing unit (GPU) performance. Until a few years ago, these powerful chips were primarily used in the gaming industry, but their ability to handle many tasks at once has allowed them to expand their applicability to other fields, including AI. Ta.
And with the AI boom, sales of Nvidia’s GPUs and related products have increased. The company’s total revenue of $30 billion in its most recent quarter exceeded its annual revenue for the most recent fiscal year 2023.
Thanks to the growth of the general AI market and Nvidia’s focus on innovation, there is reason to be optimistic that this will continue. Analysts predict that the current $200 billion AI market will grow to $1 trillion by the end of this decade. If that happens, Nvidia, a leading seller of essential and top-performing AI products and services, should benefit. Nvidia also promises to update its GPUs annually, which should keep it ahead of its competitors.
Now let’s consider the second way AI could significantly increase Nvidia’s revenue. This is achieved by deploying AI across the company. In other words, Nvidia is not only a manufacturer of AI, but also a user of AI, just like its customers. This should help Nvidia streamline processes, increase efficiency, and reduce costs in the long run.
Using Nvidia’s AI
NVIDIA is already leveraging AI in chip design and supply chain management, CEO Jensen Huang said at the Gartner IT Symposium, according to a report from Fierce Network. Huang added that in the future, the company will have 50,000 employees and more than 100 million AI assistants. Currently, Nvidia has approximately 30,000 employees, so the company expects to significantly expand its talent base. But with the explosion of AI assistants, this entire workforce should be much more productive and cost-effective than an all-human workforce.
This is good news for Nvidia’s gross margins. Even in the early stages of using AI, gross profit margins are already over 70%. Nvidia aims to report gross margins in the mid-70s for the third quarter and full year. In the long run, Nvidia should be able to maintain wide margins, as AI assistants make up a large portion of the company’s workforce. This, combined with increased revenue from innovation and general demand, could boost earnings over the long term.
Certainly, Nvidia is the winner of this potential AI revolution thanks to the sales of products and services to customers, but the benefits to the bottom line go beyond that. As users of our AI tools, Nvidia strives to improve processes, speed them up, and lower costs. All of these should also play an important role in future earnings growth. This makes Nvidia an attractive AI stock to buy now and hold for the long term as this incredible growth story unfolds.
Adria Cimino has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has a disclosure policy.
