Artificial intelligence (AI) investing continues to be the best choice in the market. The AI hyperscalers are spending hundreds of billions of dollars on building out computing capacity, and any company that is a beneficiary of this spending is an excellent place to invest.
One of the most popular investments from the beginning of the AI race has been Nvidia (NASDAQ: NVDA). Despite being among the best performers over the past few years, Nvidia is still the ultimate AI stock right now, I believe, especially if its market projections come true.
Nvidia makes graphics processing units (GPUs), which specialize in computing tasks that require plenty of horsepower. They can process multiple calculations in parallel, an effect that can be amplified by connecting hundreds or thousands of them in clusters. This is what occurs in giant AI data centers, where companies connect 100,000 or more GPUs to form supercomputers.
Nvidia’s data center GPUs aren’t cheap, so it makes a fortune off of each one sold. It’s rare to see a hardware company with the margin profile that Nvidia has, but it has consistently delivered a profit margin greater than 50% over the past few years.
This allows the chipmaker to generate huge profits, which is why the stock has increased so much over the past few years. And if management is right about the general direction of AI spending, its stock is just getting started.
During the company’s second-quarter conference call, management estimated that global data center capital expenditures will rise to anywhere from $3 trillion to $4 trillion by 2030. Currently, AI hyperscalers are spending around $600 billion annually, and with Nvidia estimated to generate $206 billion in revenue during this fiscal year, it’s safe to say that it gets around a third of all data center spending.
That indicates that the company’s revenue could be $1 trillion to $1.3 trillion by 2030. Should it reach that level, it would be an annual growth rate of 37% on the low end of management’s projection. If Nvidia can maintain its impressive profit margins, it’s not unreasonable to think that its stock could rise by a corresponding amount over the next five years.
A 37% annual return wouldn’t just outperform the market; it would crush it. The S&P 500 tends to return around 10% annually, so Nvidia could easily be the ultimate growth stock to buy now.
