The company has hooked developers with its AI ecosystem and has the cash to maintain its market lead.
Nvidia (NVDA -1.91%) has reached record highs over the last year as it has become the poster child for a boom in the artificial intelligence (AI) market. Since the start of 2023, the chipmaker’s stock has skyrocketed 174%, while quarterly revenue and operating income have climbed 93% and 149%. Wall Street has rallied behind Nvidia as it has achieved a majority market share in AI graphics processing units (GPUs) just as demand for the chips has soared.
Uncertainty about how long Nvidia can keep up its bull run weighed on its stock toward the end of June and the start of July when it fell as low as $118 per share after hitting a high of $135 per share just days before. However, its share price rebounded on July 3, rising 4% as the slump proved temporary.
Meanwhile, the company still has plenty to be bullish about. Nvidia has years of dominance in the chip market under its belt, suggesting its role in AI is unlikely to dissipate any time soon. The chipmaker also has new product launches in the works that will likely continue to boost sales and earnings to retain its lead in the retail chip market.
Here’s why Nvidia stock could help you become a millionaire over the long term.
Nvidia has a long history of success in the chip market
Nvidia initially made a name for itself by carving out a dominating role in video games. The company was one of the first to begin selling chips to the consumer market, with gamers using its GPUs to build high-powered gaming PCs. Nvidia’s success in the industry has seen its desktop GPU market share rise from 65% in 2014 to 88% in the first quarter of 2024.
A lead in gaming chips perfectly positioned the company to gain a dominant role in data-center GPUs and, eventually, AI. In fact, according to IoT Analytics, Nvidia is responsible for more than 90% of the data-center GPU market. Many of these data centers have become crucial to the development of the AI market, powering platforms like Amazon Web Services, Microsoft‘s Azure, and OpenAI’s ChatGPT.
Nvidia has managed to retain its dominance in GPUs in different sectors across tech despite the persistence of companies like Advanced Micro Devices and Intel. For instance, while Nvidia has added more than 20 points to its desktop GPU market share over the last decade, AMD’s has actually fallen from 33% to 12%. Meanwhile, Intel briefly had a 4% share in Q1 2023, which has since dwindled to 0%.
The best is yet to come
We’re only about a year into the recent boom in AI, suggesting developers have barely scratched the surface of what’s possible with the generative technology. As the market progresses, chip demand is only likely to continue rising. Meanwhile, Nvidia is leveraging its lead to steer the industry in its favor and challenge its competitors.
In 2024, Nvidia transitioned to a yearly release schedule for new chips when a two-year cycle was previously the market standard. The shift forced AMD and Intel to follow suit. As a result, Nvidia is gearing up to launch its Blackwell line chips, the company’s next generation of AI training processors. CEO Jensen Huang noted at the announcement, “The Blackwell architecture platform will likely be the most successful product in our history and even in the entire computer history.”
A leading reason for Nvidia’s success is the software platform accompanying its AI chips, which it calls its Compute Unified Device Architecture (CUDA). Developers worldwide have grown accustomed to this ecosystem, with switching akin to how a user of Apple‘s iPhone might feel about switching to a Samsung phone. Consequently, Nvidia’s competitors will likely face an uphill battle trying to gain traction in AI.
Data by YCharts.
Moreover, the data in the table above shows the significant financial lead Nvidia has achieved over its competitors. Since last July, Nvidia’s operating income and free cash flow have skyrocketed far higher than AMD or Intel’s, indicating Nvidia is far more capable of continuing to invest in its business and retain its market dominance.
Despite recent growth, Nvidia’s price/earnings-to-growth (PEG) ratio sits at less than one, indicating its stock remains a value. Alongside nearly unrivaled dominance in the budding AI market, Nivida is a screaming buy this July and a stock that could make you a millionaire with the right investment.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.