Nvidia's Stock Plunge: A Potential Investment Opportunity in the AI Boom

A Once-in-a-Generation Investment Opportunity: 1 Artificial Intelligence (AI) Stock Set to Soar 77%, According to 1 Wall Street Analyst

Hans Mosesmann of Rosenblatt Securities is calling for Nvidia to reach a $5 trillion valuation. Semiconductor company and artificial intelligence (AI) darling Nvidia (NVDA -6.67%) might just be the most well-known company on the planet right now. Considering the enormous role Nvidia plays in the AI movement, it seems like the entire technology sector hinges on how Nvidia's business is performing. So far in 2024, Nvidia has grown its market cap by 127% -- currently hovering around $2.8 trillion. Nevertheless, one Wall Street analyst in particular is sounding the alarm and calling for even more growth. Hans Mosesmann of Rosenblatt Securities recently increased his price target for Nvidia to $200 per share. Should Nvidia reach this price, it would imply a market cap of $5 trillion. Let's dig into how AI is transforming Nvidia and why I see the stock as a no-brainer opportunity for long-term investors. AI is transforming the technology industry AI is a pretty broad term. Moreover, while AI is of high interest at the moment, the technology has existed in some form or fashion for decades. In late 2022 when OpenAI released its large language model (LLM), ChatGPT, to the world, it was perhaps the first time in modern history that AI-powered applications entered the mainstream. As such, businesses and people in general were captivated by the potential of generative AI and quickly found ways to implement the technology into their daily lives. Although AI can take many forms, one of the biggest pillars in propping up its development is semiconductor chips. This is where Nvidia comes into play. How Nvidia is disrupting AI When Nvidia was founded nearly 30 years ago, its primary mission was to augment graphics for video games. While gaming is still a part of Nvidia's business, the company has branched out into other areas over the last several years. Namely, Nvidia's graphics processing units (GPUs) are sophisticated semiconductor chips that are used for a wide variety of AI-driven applications such as machine learning, quantum computing, and even autonomous driving. Today, the majority of Nvidia's revenue and profits stems from its chip and data center business. Although hardware is currently Nvidia's bread and butter, the company has also quietly built a budding enterprise software business. Nvidia's compute unified device architecture (CUDA) software is meant to be used alongside the chips when developing AI products. Nvidia faces fierce competition in the chip realm from the likes of AMD, Intel, and even some big tech stalwarts including Amazon and Meta. As competition increases, Nvidia will likely eventually begin to witness a slowdown from its chip operation and it'll be increasingly difficult for the company to command such immense pricing power for several more years. Nevertheless, if Nvidia's revenue and gross margin profile start to decelerate, the high-margin aspect of its CUDA software business should help mitigate any potential deteriorating growth in the hardware operation. Lastly, Nvidia has also made a number of splashy investments related to AI. In particular, the company is an investor in enterprise software start-up Databricks and humanoid robotics company Figure AI. I see both of these moves as savvy choices by Nvidia, as each provides the company with ample opportunities to penetrate the chip and software businesses further. Is Nvidia headed to $5 trillion? Whether Nvidia will reach a $5 trillion valuation is somewhat moot. In fact, I'd go as far as to say it's an exercise in false precision. The ideas explored above shed light on where Nvidia's business is today, and where it could be headed as AI continues to be further integrated across industry sectors and product types. Fortunately, I think Nvidia has an incredibly bright future backed by its robust end-to-end AI platform featuring hardware, data centers, and software. The chart below illustrates Nvidia's price-to-earnings (P/E) and price-to-free cash flow (P/FCF) ratios over the last three years. NVDA PE Ratio data by YCharts The interesting thing to point out here is that both Nvidia's P/E and P/FCF ratios are well off their highs and essentially flat compared to three years ago. Considering the company has changed dramatically over just the last couple of years, and the transformation prospects that AI presents, there's an argument to be made that Nvidia stock is cheaper today than it was three years ago -- and that its full potential in AI is not already priced into the stock. I see Nvidia as a generational opportunity and well-positioned to continue succeeding across many areas of the AI landscape for the long term. I think investors have a lucrative opportunity to scoop up shares of one of the tech sector's most prolific AI businesses in Nvidia right now.

Nvidia Has Plunged 26% in 6 Weeks -- but History Suggests an 80% Drop May Be in Order | The Motley Fool

For nearly two years, Wall Street has been entrenched in a sensational bull market. In recent weeks, the ageless Dow Jones Industrial Average, broad-based S&P 500, and innovation-fueled Nasdaq Composite all ascended to fresh record-closing highs. While there are a number of catalysts responsible for pushing the broader market to new heights, including a resilient U.S. economy and better-than-expected operating results for Wall Street's most-influential businesses, the rise of artificial intelligence (AI) is firmly at the top of the list. With AI, software and systems oversee tasks that would normally have been assigned to humans. What gives this technology such immense appeal -- the analysts at PwC estimate a $15.7 trillion boost from AI to the global economy by 2030 -- is the capacity for AI-driven software and systems to learn and evolve without human intervention. Machine learning gives AI utility in pretty much every sector and industry. When next-big-thing technologies come along, professional and everyday investors aren't shy about bidding up the valuations of the companies behind them. Without question, no company has benefited more from the AI revolution than Nvidia (NVDA -6.67%). Beginning in early 2023, Nvidia's H100 graphics processing units (GPUs) became the preferred choice for businesses wanting to run generative AI solutions and train large language models. The semiconductor analysts at TechInsights have estimated that Nvidia accounted for all but 90,000 of the 3.85 million GPUs shipped to high-compute data centers last year. Having a veritable monopoly on the hardware powering decision-making in AI-accelerated data centers is an enviable place to be. With demand for the company's chips easily outstripping their supply, Nvidia has had no trouble meaningfully increasing the price of its H100 GPUs and pumping up its adjusted gross margin. Furthermore, Nvidia isn't sitting on its laurels when it comes to innovation. Even though its H100 GPU has clear compute advantages over its rivals, Nvidia is set to roll out its next-generation GPU platform, known as Blackwell, in the latter-half of this year. In June, CEO Jensen Huang also teased the potential of its Rubin architecture, which is slated to hit the market by 2026. It would appear that Nvidia has a blueprint to retain its compute advantage in AI-accelerated data centers. This textbook operating expansion allowed Nvidia's valuation to catapult from $360 billion, when the curtain opened in 2023, to a peak of almost $3.5 trillion on an intra-day basis on June 20. For a brief moment, Nvidia became the most-valuable publicly traded company in the world. Then the music slowed... Since peaking at $140.76 on an intra-day basis, shares of Nvidia have plunged by 26% to $103.73, as of the closing bell on July 30. In roughly six weeks, Wall Street's AI darling has shed in the neighborhood of $900 billion in market value, which is higher than the market cap of 493 out of the 500 companies that comprise the S&P 500. Although stocks don't move up or down in a straight line, history suggests that Nvidia may have a lot further to fall. Over the last three decades, Wall Street has entertained no shortage of perceived-to-be game-changing innovations, technologies, and trends. This includes the advent of the internet, genome decoding, business-to-business commerce, housing, China stocks, nanotechnology, 3D printing, cryptocurrency, blockchain technology, legalized cannabis, augmented/virtual reality, the metaverse, and now artificial intelligence. Although market leaders for every trend listed above enjoyed parabolic moves higher in the early going, the music and euphoria eventually stopped. While some of these innovations went on to be wildly successful for patient investors (the internet), others flopped and never recovered (3D printing and cannabis). The key point here is that all new technologies, trends, and innovations need to time to mature. While a $15.7 trillion addressable market probably sounds great on paper, the reality right now is that a majority of businesses lack a game plan for how they'll utilize AI to generate additional sales and grow their profits. The one constant for next-big-thing innovations is an overestimation of uptake, adoption, and utility by the investing community -- and this includes Wall Street analysts and institutions. Every last trend I mentioned above endured a bubble-bursting event in its early stages, and there's nothing to suggest that AI won't follow suit. Market-leading businesses tied to the advent of the internet, business-to-business commerce, genome decoding, cannabis, and cryptocurrency all plunged around 90%, or more, following the bursting of their respective bubbles. Meanwhile, the face of the metaverse, Meta Platforms (META 4.83%), dipped by 80% before finding its nadir. Meta Platforms enjoyed a firmer foundation because it had its established social media assets to lean on in the event that the hype surrounding the metaverse disappeared. Meta generates approximately 98% of its revenue from advertising, and no social sites draw anywhere close to the number of daily active users that it can. Nvidia offers similarities in that it has an established GPU businesses for data centers, gaming, and cryptocurrency miners, along with virtualization software and automotive/robotics solutions. Even if the AI bubble were to burst, these established segments should keep Nvidia's stock from experiencing a decline of 90% or more, as we witnessed with other next-big-thing innovations. Nevertheless, history is quite clear that bubble-bursting events are unkind to market leaders behind next-big-thing trends. A decline of 80% for Nvidia isn't just a possibility -- it's the expectation given what history tell us. To make matters worse, history isn't the only headwind Wall Street's AI darling is contending with. Beginning in the second half of this year, Intel is expected to roll out its Gaudi 3 AI-accelerating chip on a wide-scale basis. This coincides with Advanced Micro Devices continuing to up production of its MI300X AI-GPU, which is considerably cheaper than the H100 on a cost basis. Even if Intel's and AMD's chips remain inferior, in terms of compute capabilities, Nvidia's inability to meet overwhelming enterprise demand will open the door for Intel and AMD to fill the void. Furthermore, Nvidia's four largest customers by net sales (which are all members of the "Magnificent Seven") are internally developing AI chips for their respective data centers. Though it's unlikely these GPUs are going to outperform Nvidia's, they're notably cheaper than Nvidia's chips and will be taking up valuable data center "real estate" in the coming months, quarters, and years. The implication being that Nvidia's GPU sales to America's most-influential businesses have peaked. We're already seeing evidence that Nvidia's market share dominance is set to wane. After reporting an adjusted gross margin of 78.35% during the fiscal first quarter (ended April 28), the company guided to an adjusted gross margin of 75.5% (+/- 50 basis points) for the fiscal second quarter. Even though Nvidia's margins have meaningfully expanded over the last 18 months, the first (forecast) sequential decline since 2022 suggests that the AI scarcity responsible for pushing GPU prices higher is about to dwindle.

Better Artificial Intelligence Stock: Nvidia vs. C3.ai | The Motley Fool

Nvidia (NVDA -6.67%) and C3.ai (AI -3.48%) represent two very different ways to invest in the growth of the artificial intelligence (AI) market. Nvidia is the world's top supplier of data center GPUs for processing complex AI tasks, while C3.ai develops AI algorithms that can optimize, accelerate, and automate tasks for large organizations. But over the past three years, Nvidia's stock rallied by 480% while C3's stock tumbled by nearly 50%. Nvidia dazzled the bulls with its accelerating sales of data center GPUs, but C3 lost its luster as sales growth cooled and the company racked up steep losses. So, will Nvidia continue to outperform C3 for the foreseeable future? Nvidia is the world's largest producer of discrete GPUs for PCs and servers. It once generated most of its revenue from gaming PCs, but the rapid expansion of the AI market turned its data center GPU unit into its largest and fastest-growing business. The company generated 87% of its revenue from data center chips in the latest quarter. Nvidia controls 88% of the entire discrete GPU market, according to JPR, as well as 98% of the data center GPU market, according to TechInsights. That market dominance should help the company remain the linchpin of the AI market. Nvidia's revenue growth flatlined in fiscal 2023 (which ended in January 2023) as the global PC market lapped its pandemic-driven acceleration. But in fiscal 2024, its revenue soared 126% as the market's demand for the company's AI chips outstripped available supply. Analysts expect Nvidia's revenue to rise another 98% in fiscal 2025. C3.ai is a much smaller software company that plugs its AI algorithms into a company's existing infrastructure. It also provides those algorithms as stand-alone services. C3.ai faces a lot of competition from data mining services like Palantir, automation platforms like UiPath, and integrated AI tools in big cloud infrastructure platforms like Amazon Web Services (AWS). C3.ai also relies on a single joint venture with the energy giant Baker Hughes for about 30% of its annual revenue -- and that crucial deal is set to expire next April. C3.ai's revenue only rose 6% in fiscal 2023 (which ended in April 2023) as the macro headwinds drove many companies to rein in their software spending. Its new consumption-based pricing model, which is aimed at gaining more customers in a tough market, also cannibalized the company's subscription-based fees. But C3.ai's revenue grew 16% in fiscal 2024, and analysts expect an acceleration to 23% growth in fiscal 2025 as the macro environment warms up and it rolls out more generative AI tools. Based on those estimates, Nvidia doesn't look cheap at 23 times this year's sales. C3.ai looks a bit cheaper at 9 times this year's sales -- but it isn't a screaming bargain yet. Nvidia is consistently profitable on a generally accepted accounting principles (GAAP) basis, but C3.ai continues to rack up steep GAAP and non-GAAP losses. C3.ai originally aimed to turn profitable on a non-GAAP basis in fiscal 2024, but it walked back those plans in the first quarter of that year to ramp up its R&D and marketing investments in new generative AI tools. On a non-GAAP basis, analysts expect Nvidia's EPS to jump 109% in fiscal 2025. However, they expect C3.ai's non-GAAP net loss to widen this year as it ramps up its AI investments. Nvidia trades at 43 times forward earnings, which seems reasonable relative to its near-term growth rates. Its main competitor, AMD, which is growing at a much slower rate, only has a slightly lower forward multiple of 41. Lastly, we should note that C3.ai's share count rose more than 20% over the past three years as it subsidized its salaries with a lot of stock-based compensation. Nvidia's share count actually declined 1% during that period as it accelerated stock buybacks. It's easy to see why Nvidia outperformed C3.ai; it's larger, it's growing faster, it's more profitable, and it has a much wider moat. Those strengths should drive its stock higher and help it outperform C3.ai for the foreseeable future. C3.ai isn't down for the count yet, but it needs to narrow its losses, diversify its customer base, and prove its business model is sustainable.