Nvidia (NVDA -1.66%) invented the graphics processing unit (GPU) in 1999. Since then, its innovations have revolutionized the media and entertainment industry, bringing sensational visual effects to video games, movies, and professional design applications. The company’s GPUs have also become the gold standard for accelerating complex data center workloads such as artificial intelligence (AI) and analytics.
As these events unfolded, NVIDIA created significant value for its shareholders. The company’s stock has risen 43,670% since 2000, giving him an annual compounding rate of 28.6%. At this rate, his $5,000 invested in the company 24 years ago would be worth him $2.1 million today. While it may not offer similar returns in the future, Nvidia stock could still be a worthwhile investment. Here’s why:
Nvidia ends the year with impressive fourth quarter results
Nvidia is S&P500 But when the company announced its fourth-quarter results last week, Wall Street got excited. Some analysts expected the stock to fall sharply following the report simply because expectations were so high. However, the company once again outperformed expectations, exceeding expectations on sales and bottom line, and the stock rose 10% on the news.
Fourth-quarter revenue rose 265% year-over-year to $22.1 billion, driven by continued momentum in the data center division driven by frenzied demand for AI chips. Nvidia also reported strong growth in professional visualization, which consists of chips and software dedicated to digital content creation. Ultimately, non-GAAP net income increased 486% year over year to $5.16 per diluted share as pricing power supported a 10 percentage point increase in gross margin.
The infographic below details Nvidia’s fourth quarter revenue growth across its four major business segments.
Infographic by author. Shown above is Nvidia’s revenue across his four largest business segments for his fiscal 2024 fourth quarter ended January 28, 2024. OEM and other revenues are excluded as they accounted for less than 1% of total revenues.
Nvidia is a powerhouse of the AI revolution
Following the invention of the graphics processing unit (GPU) in 1999, Nvidia showed its dominance with CUDA in 2006. CUDA is the programming model that opened up in-house GPUs to general-purpose computing and laid the foundation for the data center business. The company has also started building software libraries that allow GPUs to accelerate workloads such as scientific computing, data analysis, and machine learning.
Twenty years later, Nvidia GPUs have become the gold standard for accelerated computing. According to analysts, the company has a 98% market share in data center GPUs, more than 95% market share in workstation graphics processors, and more than 80% market share in AI chips. Additionally, the company expanded its ability to monetize graphics and AI by expanding into subscription software and cloud services.
Omniverse Cloud brings together hardware, software, and services that support 3D application development and physically accurate simulation. This is useful for training machine learning models for autonomous robots and self-driving cars. Similarly, DGX Cloud brings together hardware, software, and services that support AI application development across a variety of use cases, from retail and customer service to logistics and healthcare.
Nvidia has also expanded its data center hardware portfolio with high-performance networking equipment and central processing units. This makes Nvidia a full-stack accelerated computing company, with products that span every layer of the computing stack, from infrastructure to software and services.
According to CFRA analyst Angelo Gino, this full-stack strategy gives the company a surprising competitive advantage. It not only creates new monetization opportunities with existing customers, but also reduces friction with potential customers. As a result, Nvidia became the engine of his AI revolution, and its ability to innovate will keep the company at the forefront of AI computing for years to come.
Nvidia stock price is surprisingly resilient
Nvidia is ideally positioned to benefit as enterprises invest in AI. Argus analyst Jim Kelleher recently wrote: “In our view, Nvidia stands out because it not only participates in so many parts of the dynamic AI economy, but also integrates its products with first-of-its-kind AI. -Services provided through the cloud.”
With this in mind, the graphics processor market is projected to grow at 28% per year through 2030, and AI spending is projected to grow at 37% per year over the same period. This puts Nvidia on track for annual revenue growth of 30% until the end of his 20s, which would imply similar (or slightly faster) revenue growth.
In fact, Wall Street expects the company to grow its earnings per share by 35% annually over the next five years. Based on this consensus estimate, the current valuation of 66x P/E seems acceptable.
Nvidia is probably cheaper than many other popular AI stocks. Amazon and microsoft. Specifically, the company’s PEG ratio (price-to-earnings ratio divided by expected earnings growth rate) is currently 1.9, while Amazon and Microsoft’s PEG ratios are 2.5.
That said, a lot will depend on how quickly Nvidia grows its revenue in the future. If the company fails to match consensus expectations, its stock price will almost certainly plummet. Investors who can tolerate that risk should consider buying a small position in Nvidia stock today, especially as part of his basket of AI stocks.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Trevor Jennewine has positions at Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon, Microsoft, and Nvidia. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
