Nvidia (NVDA 0.12%) has emerged as the hottest player in the artificial intelligence (AI) space. State-of-the-art graphics processing units (GPUs) are the most important hardware element of servers running advanced AI applications.
Nvidia currently controls about 90% of the market in the particularly lucrative category of GPUs specialized for running AI and other accelerated computing applications. On the other hand, including competitors, Advanced Micro Devices and intelhas made moves to strengthen its capabilities in the ultra-high-performance GPU space, and many analysts expect Nvidia to maintain its incredible strength in this category.
On the back of an impressive performance, NVIDIA stock is up 240% over the last year and 82% year to date in 2024 as management guides the company toward even more explosive growth.
These gains gave Nvidia a market capitalization of approximately $2.27 trillion. Currently, in the world he is the third most valuable company and ranks as his third most valuable member of the “Magnificent Seven”. appleMicrosoft, currently in second place, has a market capitalization of $2.65 trillion, while the top company, Microsoft, is valued at approximately $3.12 trillion.
Could Nvidia soon become the world’s most valuable company?
The most influential players in AI are benefiting.
Starting in late 2022, amazing advances in artificial intelligence technology began to emerge rapidly. His progress accelerated dramatically in 2023, and he shows no signs of slowing down this year.
As companies and institutions move into the AI space, demand for Nvidia’s cutting-edge processors is surging. Its sales and profits are through the roof.
In the fourth quarter of last year, the company’s revenue was $22.16 billion, up 265% from the same period last year. Thanks to a dramatic earnings acceleration in the second half of 2023, Nvidia’s annual revenue rose 126% to $60.9 billion.
NVDA Net Profit (TTM) data by YCharts.
Nvidia posted a net profit of $29.76 billion last year, representing 49% of its total sales. This is an incredible net profit margin for a hardware-oriented business. These companies often have lower profit margins than software-oriented businesses due to the higher incremental costs associated with producing physical goods.
But the company’s incredible profit margins reflect how in-demand its GPUs are right now. While it’s reasonable to expect Nvidia’s impressive growth to slow down, the business looks poised to grow at a much faster pace than Apple or Microsoft, at least for the next few years.
AAPL Net Income (TTM) data by YCharts.
Apple and Microsoft still generate significantly more revenue and net income than Nvidia. Meanwhile, the chip powerhouse appears well-positioned to remain the biggest winner in the AI revolution, growing at a much faster rate than those big tech giants.
For comparison, Microsoft saw revenue increase by about 10% and net income by 20% over the subsequent 12 months. Meanwhile, Apple’s revenue remained flat throughout this period, but its net income increased by 7%.
If the demand for AI services continues to grow dramatically, there’s a good chance Nvidia will surpass Apple’s market capitalization within the next five years and dethrone Microsoft as the world’s most valuable company. GPU leaders’ businesses have historically been shaped by cyclical trends, but they appear to be in the early stages of reaping the benefits of the unfolding AI revolution.
Currently, NVIDIA is benefiting from the emergence of unprecedented new technologies. This means there is a fair amount of guesswork involved in predicting earnings over the next five years. But given its incredible sales and profit momentum, as well as the market-wide excitement about artificial intelligence applications, it’s no surprise that Nvidia claims the title of the world’s most valuable business.
Keith Noonan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: Long January 2023 $57.50 calls on Intel, Long January 2025 $45 calls on Intel, Long January 2026 $395 calls on Microsoft, Short January 2026 $405 calls on Microsoft. call, and a May 2024 $47 short call. Intel. The Motley Fool has a disclosure policy.
