NVIDIA (NASDAQ: NVDA) Recently, there was a big move that caught the attention of the investment community: the tech giant completed a 10-for-1 stock split last week, which dropped Nvidia’s price per share from over $1,200 to around $120, opening up the company’s shares to a wider range of potential investors.
It was a long-awaited deal since Nvidia’s shares soared above $900. After the company announced the stock split in its earnings report last month, the news, along with soaring revenue, pushed the stock past $1,000.
NVIDIA has experienced rapid growth thanks to its leadership in the artificial intelligence (AI) chip market. Customers have rushed to get their hands on the company’s AI products and services, which has transformed the company’s stock into one of the hottest stocks on the market. NVIDIA’s stock is trading at a lower price per share after a stock split, but is this a once-in-a-lifetime investment opportunity?
The secret to Nvidia’s success
So how did Nvidia get so successful? Once known for powering products in the gaming industry with its graphics processing units (GPUs), the company saw the potential for GPUs to do so much more. These powerful chips handle multiple tasks simultaneously, making them ideal for AI applications like model training and inference.
Nvidia set its sights on serving AI customers, and the rest is history: Today, Nvidia still sells GPUs to the video game industry, but its biggest customer is AI: In the most recent quarter, data center revenue exceeded $22 billion, far outpacing gaming revenue of $2.6 billion.
Importantly, profits have grown triple digits quarter over quarter and Nvidia’s margins have expanded, too: Gross margins expanded from about 64% a year ago to more than 78% in the most recent quarter.
Nvidia has built an advantage in the AI ​​market due to the strength of its GPUs (the fastest on the market), the breadth of its AI services (including enterprise software), and the presence of products across all public clouds. If you’re a potential customer, finding Nvidia is easy.
There are a few reasons why the company is able to maintain this impressive leadership position: First, it’s already ranked number one and has a strong brand, so it’s starting off in a good position.
Keeping an eye on new trends
Second, Nvidia is sensitive to new trends in the market and is quickly taking steps to lead the way, a great example being sovereign AI, where countries create their own AI using their own infrastructure and data.
Nvidia CEO Jensen Huang has spoken publicly about the importance of sovereign AI, and the company has already signed deals to help certain countries on that path, and Nvidia expects revenue from sovereign AI to reach “single-digit billions” this year, up from zero last year.
Finally, Nvidia will likely continue to lead thanks to its “one-year cycle” of bringing new high-performance GPUs to market, so even if a rival releases a chip that’s better than Nvidia’s current chip, it will likely release a GPU that’s better than anything else on the market within a few months.
Buying Nvidia products may cost more than buying competitors’ products, but CEO Huang argues that in the long run, “the best performance is also the lowest cost” – because running data centers is expensive and power-hungry, so using the most efficient products saves customers time and money.
All these factors point to further growth for Nvidia. To put an even more positive spin on the outlook, remember that the AI ​​growth story is still in its early stages, which suggests that demand will likely continue at current levels and even grow over time.
A once-in-a-lifetime opportunity?
Considering all this, after the recent stock split, could Nvidia be a once in a lifetime investment opportunity for investors on a tight budget or those looking to add a small amount to their existing Nvidia position? Currently, it costs about $120 to buy one share. With Nvidia likely having the power to rise again, now could be a once in a lifetime buying opportunity for these investors.
So what about all the other companies? From a valuation perspective, nothing has changed. Nvidia is still trading at 44 times forward earnings, just like it was before the stock split. This will only lower the price per share by issuing additional shares to current shareholders, without changing the market value or any of the fundamentals.
That said, Nvidia’s overall strength could lead to a higher valuation in the future as the company continues to win in this fast-growing market. That means Nvidia right now could be a once-in-a-generation opportunity for investors who want to get in early to a game-changing AI stock with even more growth to come.
Should I invest $1,000 in Nvidia right now?
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Nvidia. The Motley Fool has a disclosure policy.
The post Is Nvidia a Once-in-a-Lifetime Investment Opportunity After Stock Split? was originally published by The Motley Fool.
