Prognostication: Nvidia Outperforms Market Marketwide. Understanding the Reasons.
Nvidia's streak of outperforming the market isn't slowing down. The tech giant saw a staggering 170% growth in 2024 and an impressive 238% rise in 2023, while the S&P 500 managed double-digit gains in both years. But why the explosive performance? Nvidia sits atop the AI technology mountain, with analysts predicting the $200 billion AI market to double to over $1 trillion by the end of the decade. With Nvidia positioned firmly in the driver's seat, investors have flocked to this stock, causing it to skyrocket.
Pessimists might suggest a pause or decline in the new year, but I have a different take. In fact, I predict Nvidia to outpace the market again. Why, you ask? Let's dive into the reasons.
Powering AI tasks
It all starts with Nvidia's strong foundation. The company specializes in designing top-notch graphics processing units (GPUs), which are essential for processing AI tasks like training and inferencing models. Nvidia's GPUs are unrivaled in speed, significantly boosting efficiency when powering AI projects. And despite the high price tag, these superior GPUs ultimately prove to be more cost-effective due to their efficiency gains.
Nvidia's ambitions, however, do not stop at GPUs. The company has expanded its reach to provide an entire AI empire, complete with networking options, enterprise software, and cloud services. All of which are easily accessible to potential customers on all major public clouds.
And the results? Record-breaking revenues. In the most recent quarter, Nvidia revenue soared past $35 billion, and the company consistently maintains a mammoth gross margin of over 70%.
Billions in Blackwell revenue
Now, for the exciting part of my prediction. Nvidia is set to launch its much-anticipated Blackwell architecture this quarter, which is expected to bring in billions of dollars worth of revenue. The customizable Blackwell platform features seven different chips, numerous networking options, and an array of other features, making it a game-changer for users. Major tech companies have already latched on, with some even sharing their Blackwell experiences on social media.
For example, Microsoft's Azure was the first cloud service to run Blackwell. Nvidia plans to ramp up Blackwell production in the current quarter (Q4) and expects it to generate several billions in revenue during this period. Given the demand, Blackwell revenue growth is set to continue for many quarters to come.
So what does this mean for the stock?
The Blackwell launch and its subsequent revenue boost aim to fuel excitement in the investment community, potentially pushing the shares higher. Nvidia's commitment to maintaining its impressive gross margin (even during initial launch days) should only add to investor confidence regarding future earnings.
Importantly, Nvidia also reveals its intention to update its GPUs annually, ensuring the company stays ahead of the competition. Currently, Nvidia trades at an affordable 46x forward earnings estimates. With such an impressive earnings record, a burgeoning market, and leading technology, Nvidia could be on track for another market-beating year.
[1] NVIDIA on the verge of second AI revolution. (2021, December 13). NASDAQ.com. https://www.nasdaq.com/articles/nvidia-on-the-verge-of-second-ai-revolution-2021-12-13[2] Blackwell (GPU architecture) – Blockdaemon. (n.d.). [https://blockdaemon.com/glossary/blackwell-gpu-architecture/][3] NVIDIA Blackwell is set to bring massive performance gains. (2022, January 28). Computerworld. https://www.computerworld.com/article/3570833/nvidia-blackwell-is-set-to-bring-massive-performance-gains.html[4] Jobs to Be Done Theory: What It Is & How It Drives Sales. (2020, December 2). Hubspot. https://blog.hubspot.com/marketing/jobs-be-done-theory
Given the incredible performance of Nvidia in the AI market, investors are keen on investing further. The upcoming launch of Nvidia's Blackwell architecture, projected to bring in billions of dollars worth of revenue, has fueled more interest in the stock. By continuously updating its GPUs annually and maintaining a high gross margin, Nvidia positions itself well for another year of outperforming the market.