Can Nvidia continue to leapfrog and grow? These two numbers emphatically scream “yes”.

nvidia (NVDA -5.55%) The fourth quarter results released a few weeks ago left jaws dropping. The chipmaker’s revenue rose 265% year over year, hitting an all-time high. Generally Accepted Accounting Principles (GAAP) revenues soared 586%. Free cash flow increased nearly 6.5 times.

Any way you look at it, Nvidia’s growth story is impressive. But can the company continue to grow by leaps and bounds? These two numbers emphatically shout “yes”.

Executives want more AI, and soon

Boston Consulting Group (BCG) recently conducted a survey of more than 1,400 C-suite executives. These business leaders spanned 14 industries and 50 markets. Despite their diverse backgrounds, most executives agreed on two key points.

First, BCG found that 85% of executives surveyed said they plan to increase their organization’s investments in artificial intelligence (AI) and generative AI in 2024. Interestingly, this figure is much higher than the 71% of respondents who plan to increase their overall investments. Technology spending.

Second, a whopping 89% of executives surveyed by BCG ranked AI and generative AI as one of their top three technology priorities this year. Many of these leaders are dissatisfied with their organization’s progress to date in adopting AI and generative AI.

I think those two numbers are the main takeaways from the BCG survey, but there was something else that struck me. More than half (54%) of executives say they expect to achieve cost savings from AI this year. BCG quoted CEO Hans Vestberg as saying: Verizon Communications“At every step of our AI journey, we have become more and more efficient. The difference with GenAI is that the level of efficiency is much higher.”

Good news for Nvidia

These high numbers are not surprising, reflecting the fact that executives want more AI (especially generative AI). “Accelerated computing and generative AI have reached a tipping point. Demand is surging globally across enterprises, industries and countries,” said NVIDIA CEO Jensen Huang in the company’s fourth quarter press release.

Dell Technologies COO Jeff Clark also confirmed in the company’s latest quarterly update that demand for graphics processing units (GPUs) is very high. “Most of our customers are still in the early stages of their AI journey,” Clark said.

It’s not just companies that are joining the AI ​​bandwagon. “Countries around the world are investing in AI infrastructure to support building language models at scale to support native languages, domestic data, local research, and enterprise ecosystems,” Nvidia CFO Colette Kress said during the fourth quarter conference call.

All of this should lead to continued revenue growth for Nvidia in 2024 and beyond. Hopper architecture and InfiniBand networking have become the de facto standards for AI infrastructure.

Sales growth does not always lead to stock growth.

I think there’s no doubt that Nvidia’s revenue will continue to grow by leaps and bounds. Demand for AI is growing faster than GPU supply. But does this mean Nvidia stock will also continue to surge? Not necessarily.

The potential problem is that Nvida’s stock price already reflects a huge amount of expected growth. Noted valuation expert Aswath Damodaran believes Nvidia stock is worth nearly twice its fair value, which he calculates based on compound annual earnings growth of more than 32% over the next five years.

Of course, Nvidia could deliver stronger revenue growth than Damodaran’s model assumes. Investors can continue to invest in stocks regardless of their valuation. Can NVIDIA’s stock price grow rapidly in the future? maybe. But the numbers don’t scream “yes” as emphatically as the company’s revenue growth.