It goes without saying that Nvidia (NASDAQ:NVDA) leads the pack among chip companies capitalizing on the generative artificial intelligence trend. With this, it makes sense that, among chip stocks, NVDA stock has gained the most thanks to this secular growth trend.
NVDA is up more than threefold year-to-date, while shares in the company’s competitors have merely ridden its coattails, rising by considerably less so far this year.
That said, it’s not as if Advanced Micro Devices (NASDAQ:AMD), Nvidia’s key rival, or the other major semiconductor companies,were left in the dust. They too are looking to grab a piece of this fast-growing end-user market themselves.
The question is, does this threaten NVDA’s performance from here? While these other names in the space will make progress in this area, a “winner take most” scenario is very likely for this early mover.
NVDA Stock: A Commanding Lead in AI Chips
Nvidia didn’t become dominant in AI chips by accident. Years back, the company laid out the groundwork, enabling it to gain the lion’s share of the AI processor market by 2021.
With this existing commanding lead (an estimated 80%-95% market share), the company has been “cashing the check,” selling into demand created by the current generative AI gold rush.
During its fiscal first quarter (ending April 30), booming demand for AI chips helped to counter weakness among Nvidia’s other end-user markets. This resulted in a 19% quarter-over-quarter jump in revenue, and a 44% QoQ jump in earnings per share.
These numbers may not sound like enough to justify the more than 200% surge in the price of NVDA stock since January, but keep in mind this is only the start. As I discussed earlier this month, the company not only has room to run in terms of generative AI growth.
There is ample opportunity for Nvidia to capitalize on the rising use of AI applications in other areas. Still, while the company remains on the top of the heap, I can see why you may be concerned that this edge could diminish.
Competition is Rising, but Far from a Threat
Following Nvidia’s AI success, Advanced Micro Devices is playing catch up. AMD aims to debut an advanced AI graphics processing unit (or GPU) later this year.
Hence, this rival could soon seriously start regaining lost ground. Other major chip names, like Intel (NASDAQ:INTC) may also obtain more AI market share.
In short, it’s likely that Nvidia will lose some market share over time. However, I wouldn’t assume this means bad news for NVDA stock going forward. At least, based on forecasts from one sell-side analyst, Mizuho’s Vijay Rakesh.
Rakesh is bullish that AMD and INTC will benefit from the rise of AI, yet believes NVDA will continue to gain the most. For instance, even with increased competition, the analyst estimates Nvidia will continue to hold AI market share of 75% in 2027. That same year, Nvidia’s AI-related revenue could come in at $300 billion.
For reference, the company’s total revenue last fiscal year (ending January 2023) came in at $26.9 billion. Only time will tell whether this forecast proves correct. Still, if Nvidia only partially meets it, the resulting growth will undoubtedly result in some tremendous additional gains for NVDA over the next four years.
This Stock Will Stay a Top Performer
Granted, with NVDA’s massive run up, a fair amount of the company’s potential to turn AI into an eleven-figure business may seem priced-in; then again, maybe not.
A forward price-to-earnings (or P/E) ratio of 56.4 may seem pricey, yet it may not take long for Nvidia to grow into this valuation. The top end of sell-side forecasts call for earnings to more than double next fiscal year (ending January 2025) alone.
The aforementioned forecast suggests an even larger EPS jump in the latter years of the decade. Given the speed in which the AI market is growing, there is room for smaller competitors to still profit in a big way.
If given the choice to buy any chip stock for AI exposure, stick with NVDA stock. “Winner takes most” means it’ll stay a top performer.
NVDA stock earns an A rating in Portfolio Grader.
— Louis Navllier and the Investor Place Research Staff
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Source: Investor Place