Arm CEO Rene Haas calls AI “the most profound opportunity of our lifetime.” 1 stock If he’s right, I’ll buy Hand Over Fist.

There is no escaping the impact artificial intelligence (AI) has had on the market trajectory over the past year. Some even argue that the latest advancements in AI could spark a rally in 2023, pulling Wall Street out of a bear market.

Generative AI promises to unleash a wave of productivity gains, and stock market experts are still debating how much it will ultimately be worth. Most estimates start in the $1 trillion range and go upwards.

An opportunity of this magnitude has both companies and investors scrambling to get their piece of the pie. Unfortunately, in the mad rush there are those who condemn the trend as a bubble or hype.

They say that’s not the case Arm Holdings CEO Rene Haas. In an interview with Bloomberg Technology, the chief executive said, “AI does not shape or form a hype cycle in any way. We believe that AI is the most profound opportunity of our lifetime and we are only just getting started.” “

It’s a bold statement, but one that is reverberating through the halls of the world’s largest technology companies. If Haas is right – and I believe he is – there is one AI stock I will continue to buy hands down: nvidia (NVDA 3.58%).

Image source: Getty Images.

Jack, be agile…

It’s worth taking a step back for a moment and looking at how Nvidia became one of the dominant forces in technology today. The company pioneered modern graphics processing units (GPUs) to render life-like images in video games.

The technology that makes all this possible is parallel processing, which allows complex mathematical processing tasks to be processed by breaking them down into manageable bits and executing them simultaneously. Nvidia quickly realized that this technology had much broader applications, pivoting to apply it to older versions of AI, cloud computing, data centers, autonomous driving technology, and more.

The company has taken an early lead in machine learning, a nascent field of AI, and has about 95% of that market, according to New Street Research. So when generative AI came calling, Nvidia was ready.

Most of the current demand for AI comes from cloud infrastructure providers that deliver generative AI to their customers. Looking at Nvidia’s list of cloud computing customers, it looks like they’re a techie. Amazon web Service, microsoft azure, alphabetGoogle Cloud and IBM The clouds all use Nvidia processors for cloud operations. trust cloud, Baidu ai cloud, Alibaba cloud, and tencent cloud.

According to CFRA analyst Angelo Zino, Nvidia controls about 95% of the GPUs used in the data center market with standards that speed up data over the ether. However, the opportunities are largely unexploited. Rosenblatt analyst Hans Mosesmann hypothesizes that AI has triggered an upgrade cycle in the data center industry to handle the computational requirements of generative AI. With an installed base of approximately $1 trillion, the runway ahead is long.

Jack quickly…

Nvidia’s pace of innovation makes it difficult for competitors to gain ground. The company is ready to launch its next generation of ultra-fast chips as soon as its competitors release processors that come close to Nvidia’s performance. reason? NVIDIA boasts an ever-increasing research and development (R&D) budget that can run even a small country.

For example, in Nvidia’s 2023 fiscal year (ending January 29, 2023), the company spent 27% of its total revenue (a total of $7.34 billion) on R&D to create the next generation of cutting-edge technologies. Nvidia has already spent $6.2 billion through the first three quarters of fiscal 2024, and that number will undoubtedly go higher when Nvidia releases its full-year report later this month.

This massive spending has put the GPU pioneer ahead of the AI ​​curve, which is evident in its recent results. NVIDIA generated record revenue of $18.1 billion in the third quarter of fiscal 2024 (ending October 29), up 206% year-over-year. As a result, diluted earnings per share soared 1,274% to $3.71. Despite the easy performance last year due to the market downturn, the results were surprising.

Some investors cite Nvidia’s high valuation as a reason to avoid the stock. I think this is an understandable but short-sighted view. The stock is selling for 92 times earnings and 39 times sales. It seems This may seem absurd at first glance, but it doesn’t take into account the triple-digit growth that management continues to expect from the company. However, using a more appropriate price/growth (PEG) ratio would result in a valuation below 1, which is the norm for undervalued stocks.

Given the company’s industry-leading position, track record of growth, and surprisingly modest valuation, Nvidia is one stock I will continue to buy if AI is indeed “the most profound opportunity of our lifetime.”