Can NVIDIA keep Eclipse in the race?

Just as the moon obscured the sun across North America on Monday, semiconductor leadership nvidia (NASDAQ:NVDA) continues to outperform its competition.

But while the eclipse was brief, NVIDIA’s dominance has persisted over the past 15 months. The question now is whether the chipmaker can maintain its market dominance. Let’s take a look at where NVIDIA is headed.

Nearly 500% returns since early 2023

Last year, NVIDIA was the best performer in the S&P 500, returning 239%. This year, the stock has the second-highest return in the S&P 500, up 76% year-to-date (YTD). If you go back about 15 months ago to January 1, 2023, NVIDIA stock soared about 490% from $148 per share to its current price of $874 per share.

If you invested $10,000 in NVIDIA in early 2023, you would own approximately 67 shares. Those 67 shares would be worth about $60,000 at today’s price of $874 per share.

NVIDIA, which makes graphics processing units (GPUs) for computers, cars, gaming systems and other devices, has grown thanks to the artificial intelligence (AI) boom. The company’s chips are built to handle more complex generative AI-related tasks and functions faster than those of its major competitors, helping it dominate the market.

NVIDIA’s main source of revenue comes from high-performance data centers that businesses, governments, and other organizations use to quickly process large amounts of data. The chipmaker’s biggest customers include cloud computing giants Microsoft, Amazon, Meta Platforms and Alphabet, and analysts estimate that NVIDIA has 98% of the GPU market in data centers.

In the fourth quarter, the company generated about 83% of its $22.1 billion in revenue from data centers, and for the full fiscal year, data centers generated about 78% of its $60.9 billion in revenue.

NVIDIA will also see a performance boost thanks to its new Blackwell chips released in March. This chip is more than twice as powerful and 25 times more energy efficient than its predecessor. The company expects Blackwell chips to be used by Amazon, Dell Technologies, Alphabet, Meta, Microsoft, OpenAI, Oracle and Tesla, among others.

Record revenue expected

Nvidia’s outlook for this fiscal year suggests that its dominance is expected to continue, with the company expected to report record revenue of $24 billion in the fiscal first quarter, more than tripling from the same period last year. Analysts expect total sales to reach $111 billion this year, an 82% increase from last year.

But in many ways, NVIDIA is just scratching the surface of its growth potential. Generative AI is transforming computing, which will accelerate the need for more data centers capable of handling these computing requirements.

“I expect that what we are experiencing here in the United States, in the West, will inevitably be replicated globally and that these AI generation factories will be in every industry, every company, every region… (T)he past year has seen generative AI really create a whole new application space, a whole new way of doing computing, a whole new industry, and that’s what’s driving our growth,” said Jensen Huang, founder and CEO of NVIDIA. said in the company’s fourth quarter earnings release.

Do you outperform the competition?

NVIDIA will likely face more competition, especially in the data center space, as Advanced Micro Devices (NASDAQ:AMD) recently launched a new AI chip that the company expects to chip away at NVIDIA’s market share. But even as AMD chips away at NVIDIA’s market share (pardon the pun), the rapid growth of the AI ​​chip data center market will continue to fuel the market leader for years to come.

Consider this: The AI ​​chip data center market is expected to grow from approximately USD 53 billion at the end of 2023 to approximately USD 400 billion at the end of 2027, at a CAGR of 70% between now and 2027.

So I don’t expect NVIDIA’s growth to slow down significantly. The problem may be valuation. Can these high growth multiples be maintained even if a bubble occurs? NVIDIA has fallen slightly over the past few weeks and is currently valued at a reasonable forward P/E of 36. Therefore, investors may want to keep an eye on valuation, especially if there is another big spike. . However, with an entry price of $870 and a consensus price target of $976 per share, NVIDIA stock looks very good right now.

With huge and growing margins, approximately $26 billion in cash on hand, and $20 billion in free cash flow, NVIDIA is well positioned to continue its dominance.