Artificial Intelligence Fuels Demand for Nvidia
Nvidia’s GPUs play a crucial role in various areas such as gaming, crypto mining, and AI. When it comes to AI applications, GPU chips are instrumental in powering large language models (LLMs). Given the rapid rise of Microsoft’s ChatGPT and Alphabet’s Bard, it’s evident that Nvidia is closely connected to numerous leading AI players. To comprehend the extent of the demand Nvidia experiences, it is worth examining the company’s financial landscape and how its valuation has evolved.
Nvidia’s Journey Toward a $1 Trillion Valuation
The table below presents significant financial metrics for Nvidia over the past year. As shown, Nvidia’s revenue has increased by an impressive 206% during this period. Even more noteworthy is the company’s enhanced profitability. Notably, diluted earnings per share skyrocketed from $0.27 in the third quarter of fiscal 2023 to $3.71 in the most recent quarter. This extraordinary growth equates to a staggering 12,000% surge in just one year.
The considerable growth in both revenue and earnings showcases not only the demand for Nvidia’s products but also the company’s ability to command favorable pricing due to its leading position in the market.
Considering the Purchase of Nvidia Stock in 2024?
The chart below compares Nvidia’s forward price-to-earnings (P/E) ratio with its “Magnificent Seven” counterparts. Surprisingly, Tesla, a known customer of Nvidia, is trading at a forward P/E ratio nearly twice that of Nvidia’s.
Despite AMD’s impressive performance, the significant gap between its forward P/E ratio and Nvidia’s is astonishing. As a result, the case for buying Nvidia stock becomes increasingly compelling when compared to rival companies.
As the demand for AI applications continues to surge, Nvidia is poised to maintain an integral role. With the stock trading at discounted prices compared to both smaller competitors and end customers reliant on Nvidia’s technology, the current climate presents an excellent opportunity for long-term investors to secure shares.