Finance
300 billion reasons to buy Nvidia stock now
Nvidia (NASDAQ: NVDA) Stock prices have retreated from their June peak as the stock market appears to debate the future of the AI boom.
Some investors think the rally has overheated because the new technology has not yet delivered a “killer app” or caused major disruptions in the economy. There was evidence of this then Alphabet And Microsoft stocks both retreated after their recent earnings reports as investors questioned the level of spending on AI infrastructure and wondered whether those tech giants would get returns on those investments.
However, there are still plenty of AI bulls left, including former Google CEO Eric Schmidt. In a recent talk at Stanford University, Schmidt commented on the evolution of artificial intelligence, saying that companies were planning to spend tens of billions or even hundreds of billions of dollars on AI infrastructure. For example, Microsoft and OpenAI are planning a massive data center and supercomputing project known as Stargate AI that could cost as much as $100 billion.
Schmidt continued, “(OpenAI CEO) Sam Altman is a good friend. He believes it will cost about $300 billion, maybe more…” The “it” here refers to meeting their AI infrastructure needs.
He went on to say, “If $300 billion all goes to Nvidia, you know what to do in the stock market,” though he added, “That’s not a recommendation for the stock market.”
Still, it’s a reminder for investors not to take their eyes off the long-term goal when it comes to AI, as the buildout is just beginning.
$300 billion could be just the beginning
Keep in mind that Schmidt’s quote only refers to OpenAI’s infrastructure needs, so if that’s true, the industry demand is much greater than that.
In fact, Sam Altman is trying to raise as much as $7 trillion to expand the world’s semiconductor industry. artificial general intelligence (AGI), or AI that is as capable or more capable than a human.
AGI is OpenAI’s stated goal, and other tech visionaries love it Teslas Elon Musk is also working on it. Investors can expect them to continue building the necessary computing power until AGI is achieved. Nvidia CEO Jensen Huang has predicted that artificial general intelligence will happen in five years, so the market will likely see AI investments increase in that time.
What it means for Nvidia
If you look past the market volatility and investor doubts, nothing has changed in the tech industry’s expectations of AI. The race between the “Magnificent Seven” and other companies will determine the winners in the industry for the next generation and building the necessary infrastructure is critical.
Nvidia remains the distant leader in data center GPUs and other components needed to run AI models like ChatGPT, and it will likely continue to dominate that market even as competition from AMD And Intel comes online.
Nvidia had an estimated 98% share of the data center GPU market by 2023, and the company’s data center revenue rose 427% to $22.6 billion in the first quarter. That growth rate will slow as it catches up to the initial generative AI investment boom that followed ChatGPT’s launch, but Nvidia will almost certainly grow at a rapid pace as the race to AGI heats up.
Investors can debate the appropriate valuation for Nvidia stock, but the company’s strength and future potential are hard to argue with. Demand for its products still has a long way to go, according to AGI’s needs and statements from Schmidt and Altman, among others.
Schmidt’s biggest concern about the proliferation of AI infrastructure was finding enough electricity to power these massive data centers. While that could be a challenge later, it now makes a lot of sense to follow his advice and buy Nvidia stock.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 calls of $45 on Intel, long January 2026 calls of $395 on Microsoft, short August 2024 calls of $35 on Intel, and short calls in January 2026 from $405 on Microsoft. The Motley Fool has one disclosure policy.
300 billion reasons to buy Nvidia stock now was originally published by The Motley Fool
