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Nvidia (NVDA 0. 72%) has become the most popular player in the field of artificial intelligence (AI). Its graphics processing suites (GPUs) are the most important piece of hardware in servers running complex AI applications.
In the category of high-margin GPUs designed to run AI and other accelerated computing applications, Nvidia lately controls about 90% of the market. As its competitors, adding Advanced Micro Devices and Intel, take steps to develop their features in the ultra-high-performance GPU space, many analysts expect Nvidia to maintain its strength in the category.
With incredible functionality and direction guiding explosive new growth, Nvidia’s stock is up 240% over the past year and 82% so far in 2024.
These gains pushed Nvidia’s market cap to around $2. 27 trillion. It is now the third most valuable company in the world and the third most valuable company among the Magnificent Seven. Apple, which currently ranks second, has a market cap of $2. 65 trillion, while it is the leader. Microsoft is valued at around $3. 12 trillion.
Could Nvidia soon become the world’s most valuable company?
Starting in late 2022, advancements in AI technologies began to emerge at a rapid pace. This progress accelerated especially in 2023 and showed no signs of slowing down this year.
As companies and institutions have taken steps to gain exposure to the world of AI, the demand for Nvidia’s highly complex processors has skyrocketed. Their sales and profits have skyrocketed.
In the fourth quarter of last year, the company’s sales rose 265% year-over-year to $22. 16 billion. Thanks to a dramatic acceleration in functionality in the second half of 2023, Nvidia’s annual sales rose 126% to $60. 9 billion.
Nvidia posted a net profit of $29. 76 billion last year, or 49% of its total revenue. This is an incredible net margin for a hardware-focused company; These have lower margins than software-oriented companies due to the higher additional costs related to the production of physical goods.
But the company’s margins reflect the high demand for its GPUs in recent times. It’s moderate to expect Nvidia’s growth to slow, but the company seems poised to grow at a much faster rate than Apple and Microsoft at least in the next few years.
Apple and Microsoft still generate far more profit and net profit than Nvidia. On the other hand, the chip giant is well-positioned to remain the biggest winner in the AI revolution and has grown much faster than the biggest tech giants.
For comparison, Microsoft has higher sales of about 10% over the past 12 months and a net cash source of up to 20%. Meanwhile, Apple’s cash inflow remained flat during this period, even though its net profit increased by 7%.
If the demand for AI installations continues to increase dramatically, there is a strong possibility that Nvidia will surpass Apple’s market cap and take the name of the world’s most valuable company ahead of Microsoft in the next five years. Although it has been shaped through cyclical trends, it is still starting to take advantage of the current AI revolution.
Right now, Nvidia is reaping benefits from the emergence of unprecedented new technology, which means predicting its functionality over the next five years is a big deal of speculation. But given the momentum of its sales and profits and the market’s general enthusiasm for synthetic intelligence applications, it wouldn’t be surprising to see Nvidia claim the name of the world’s most valuable company.
Keith Noonan does not have any position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Apple, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: $57. 50 calls in January 2023 at Intel, $45 calls in January 2025 at Intel, $395 short calls in January 2026 at Microsoft, $405 short calls in January 2026 at Microsoft, and $47 short calls in May 2024. Intel. The Motley Fool has a disclosure policy.
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