Seize the Opportunity: Invest Heavily in This AI Stock Set to Enter the $3 Trillion League

1 Unstoppable AI Stock (Artificial Intelligence) to Buy Hand Over Fist Before It Joins the $3 Trillion Club

Nvidia (NASDAQ: NVDA) has experienced a remarkable surge in value In 2023,, more than tripling, resulting in substantial gains of 237% for investors who purchased shares at the close of the previous year. This significant price leap might lead some investors to question whether it’s too late to invest in this soaring semiconductor company.

Presently, Nvidia’s stock is trading at a considerable 113 times its trailing earnings and 36 times its sales. These figures significantly surpass the price-to-earnings ratio of 62 and sales multiple of 13 recorded at the conclusion of 2022. It’s important to note that the current valuation of Nvidia’s stock is notably higher compared to its five-year sales multiple of 19 and earnings multiple of 73.

Consequently, the question emerges: Should investors commit their funds to Nvidia stock in anticipation of further gains? Let’s delve into this inquiry.

Nvidia’s rich valuation is justified

We’ve already observed the lofty valuation of Nvidia stock, but delving into the company’s rapid growth sheds light on why this valuation exists. In the second quarter of fiscal 2024 (spanning the three months up to July 30, 2023), Nvidia’s revenue surged by an impressive 101% year over year, reaching $13.5 billion. Notably, its non-GAAP earnings saw even more remarkable growth, soaring by 429% to $2.70 per share in the previous quarter.

The company anticipates even more robust growth in the present quarter, projecting a revenue of $16 billion for fiscal Q3, coupled with a non-GAAP gross margin of 72.5%. To provide context, Nvidia achieved $5.9 billion in revenue and an adjusted gross margin of 56% during the corresponding period the previous year, hinting at another substantial year-over-year leap on the horizon.

Moreover, industry analysts predict Nvidia’s exceptional growth trajectory will continue over the next couple of years as well.

Considering Nvidia’s reported $27 billion in revenue for fiscal 2023, the company appears poised to more than triple its revenue within a mere three-year span, as illustrated in the chart above. To be more precise, Nvidia’s revenue is on track to grow at a compound annual growth rate (CAGR) of 50% for the next three years. This projection surpasses the CAGR of 35% witnessed in the previous three years, with Nvidia concluding fiscal 2020 at $10.9 billion in revenue.

The remarkable acceleration projected in Nvidia’s revenue and earnings illuminates why the company’s forward sales and earnings multiples are significantly lower than the trailing multiples mentioned earlier.

However, there’s a possibility that Nvidia might experience even more substantial growth than what analysts are currently foreseeing, and this can be attributed to one straightforward factor—artificial intelligence (AI).

AI could give Nvidia a bigger boost

Artificial intelligence (AI) has emerged as a monumental catalyst for Nvidia’s growth, particularly in the context of the company’s data center segment. Its graphics cards are being actively integrated into AI servers for both training AI models and inferencing purposes. As a result, the data center revenue experienced a remarkable tripling in the last quarter, contributing a substantial 76% to the company’s overall top line.

This phenomenon also elucidates the substantial margin increase observed. Nvidia is currently benefiting from significant pricing leverage in the AI graphics processing unit (GPU) market. Notably, its A100 GPUs, extensively deployed for training ChatGPT and numbering in the tens of thousands, are reportedly priced between $10,000 and $15,000. In parallel, the H100 GPUs, succeeding the A100, are priced at over $30,000. Projections indicate that Nvidia’s forthcoming generation of AI GPUs might command a 40% premium compared to the H100.

These trends suggest that Nvidia’s pricing power could continue to escalate within the AI domain. Coupled with its firm grip on the AI GPU market, boasting a market share exceeding 90%, Nvidia seems poised to experience robust growth in both volume and pricing. It’s this backdrop that supports projections of Nvidia’s AI-specific revenue skyrocketing tenfold by 2027, reaching a staggering annual run rate of $300 billion, as outlined by Vijay Rakesh of Mizuho. The analyst anticipates Nvidia to achieve $25 billion to $30 billion in AI revenue in 2023.

While this might appear as an ambitious forecast, Nvidia appears well-positioned to deliver exceptional growth over the next five years even if it accomplishes only half of Mizuho’s prediction. This outlook is plausible, considering the AI chip market is predicted to contribute $210 billion in revenue through 2027, according to TechNavio. Nvidia would need to capture 70% of this market to amass an additional $150 billion in revenue, suggesting that the company could cede some share in the AI GPU market and still achieve substantial gains.

Assuming Nvidia achieves $150 billion in revenue within five years and sustains its five-year sales multiple of nearly 20, its market capitalization could soar to $3 trillion from the present $1.1 trillion. Therefore, Nvidia appears likely to remain a prime choice for growth due to its association with AI, affirming that it’s not too late for investors to consider investing in the stock.