Can artificial intelligence (AI) help Nvidia beat Apple and Microsoft to become the most valuable “Magnificent Seven” stock?

nvidia (NVDA 0.12%) It has emerged as the hottest player in the artificial intelligence (AI) field. State-of-the-art graphics processing units (GPUs) are the most important hardware elements for servers running advanced AI applications.

In the particularly lucrative GPU category tailored to run AI and other accelerated computing applications, Nvidia currently holds about 90% of the market. including competitors advanced micro devices and intelAs the company moves to strengthen its capabilities in the ultra-high-performance GPU space, many analysts expect Nvidia to maintain its remarkable strength in this area.

With incredible performance and management’s guidance for even more explosive growth, Nvidia stock is up 240% over the past year and up 82% so far in 2024.

These gains boosted Nvidia’s market capitalization to approximately $2.27 trillion. The company is currently ranked as the world’s third most valuable company and the third most valuable member of the “Magnificent Seven”. apologizeCurrently in second place, the market capitalization of is $2.65 trillion, and first place, Microsoft, is worth about $3.12 trillion.

Could NVIDIA soon become the world’s most valuable company?

AI’s most influential players are being rewarded.

From the end of 2022, amazing leaps in artificial intelligence technology began to appear at a rapid pace. This progress increased dramatically in 2023 and showed no signs of slowing this year.

Demand for Nvidia’s cutting-edge processors has surged as companies and institutions move to gain exposure in the AI ​​space. Sales and profits soared through the roof.

In the fourth quarter of last year, the company’s sales recorded $22.16 billion, a 265% increase compared to the same period last year. Driven by dramatic performance acceleration in the second half of 2023, NVIDIA’s annual revenue increased 126% to $60.9 billion.

NVDA Net Margin (TTM) data from YCharts.

Nvidia recorded a net profit of $29.76 billion last year, equivalent to 49% of total sales. That’s an impressive net profit margin for a hardware-centric business. Because the incremental costs associated with producing physical products are high, margins are often lower than software-focused businesses.

But the company’s impressive margins reflect just how high demand for GPUs is right now. While it’s reasonable to expect Nvidia’s impressive growth to slow, the business appears poised to grow at a much faster rate than Apple and Microsoft for at least the next few years.

AAPL net margin (TTM) data from YCharts.

Apple and Microsoft still generate significantly more revenue and net profit than Nvidia. Chip powerhouses, on the other hand, are well-positioned to continue to be the biggest winners in the AI ​​revolution and have been growing at a much faster rate than the big tech giants.

By comparison, Microsoft has seen its revenue grow by about 10% and its net profit by 20% over the past 12 months. Meanwhile, Apple’s revenue was flat over the period, but its net profit rose 7%.

If demand for AI services continues to grow rapidly, Nvidia is likely to surpass Apple’s market capitalization within the next five years and take the title from Microsoft as the world’s most valuable company. While GPU leaders’ businesses have historically been shaped by cyclical trends, they still appear to be in the early stages of benefiting from the unfolding AI revolution.

Currently, Nvidia is benefiting from the unprecedented emergence of new technologies. This means that predicting performance over the next five years involves a great deal of guesswork. But considering its incredible sales and earnings momentum and the overall market excitement for artificial intelligence applications, it wouldn’t be surprising to see Nvidia claim the title of the world’s most valuable company.