Where would Nvidia be in a world without AI? Still sitting pretty, according to CEO Jensen Huang.
It doesn’t take an investing genius to know that Nvidia (NVDA) has been a huge winner from the artificial intelligence (AI) boom. The surging demand for graphics pressing units (GPUs) — driven largely by AI — has made Nvidia one of the largest companies on the planet.
Can Nvidia grow even bigger? Yep. The chip giant sees a $1 trillion opportunity ahead — and it’s not AI.
An unstoppable $1 trillion transition
Nvidia CEO Jensen Huang said in his company’s second-quarter earnings call in August, “[T]he world is moving from general-purpose computing to accelerated computing. And the world builds about $1 trillion worth of data centers. $1 trillion worth of data centers in a few years will be all accelerated computing.” He added later in the call, “We are at the beginning of our journey to modernize $1 trillion worth of data centers from general-purpose computing to accelerated computing.”
Is further AI demand needed to facilitate this transition to accelerated computing? Huang doesn’t think so.
He spoke on Sept. 11, 2024, at the Goldman Sachs Communacopia + Technology conference. In his remarks, Huang imagined a scenario where AI didn’t exist. He said, “Well, in the world where there’s no AI at all, general-purpose computing has run out of steam still.”
Huang argued that “Moore’s Law is over” — a reference to the principle espoused by Intel co-founder Gordon Moore that the speed of computers will double every two years. He maintained that the physical limits of fabricating semiconductors will get in the way.
The solution to the problem in Huang’s view, is accelerated computing. And no company beats Nvidia at designing the GPUs required to make accelerated computing possible.
Don’t count AI out, though
Of course, we don’t live in a hypothetical world where AI doesn’t exist. In the real world, AI is accelerating the shift to accelerated computing. Nvidia continues to add fuel to this fire.
The company’s new Blackwell GPU architecture will enable building and running large language models (LLMs) with 1 trillion parameters at up to 25 times lower cost and energy consumption than the current gold standard Hopper platform. Unsurprisingly, Huang said in Nvidia’s Q2 earnings call that “the demand for Blackwell is incredible.”
But AI won’t just speed up the transition of existing data centers that use general-purpose computing to new ones that use accelerated computing; it will also likely continue to drive the construction of more data centers. These new data centers will be what Nvidia calls “AI factories” with data and electricity as raw materials and AI as the product.
Look for Nvidia to continue pouring fuel on the fire. The company is now in a “one-year rhythm” of introducing new GPU technology. As Huang said earlier this year, [A]fter Blackwell… we have other Blackwells coming.”
A no-brainer buy?
Does Nvidia’s $1 trillion opportunity make the stock a no-brainer buy? Maybe, although it’s not a slam dunk.
For one thing, it could take much longer than Huang envisions for existing data centers to transition to accelerated computing. The surge in AI-related demand could taper off. Nvidia might not capture as much of the data center market as it hopes.
Investors should also recognize that significant growth prospects are already baked into Nvidia’s share price. The stock trades at 29.3 times trailing 12-month sales and 40 times forward earnings.
But the general premise of Huang’s case for Nvidia’s $1 trillion opportunity seems reasonable. Whether or not you think Nvidia stock is a no-brainer buy, it should still deliver exceptional gains for long-term investors.
Keith Speights has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.