Nvidia: The Leader in GPU Manufacturing and the AI Chip Gold Rush
The Rise of Nvidia
Nvidia is undoubtedly the leader in Graphics Processing Unit (GPU) manufacturing. As a ‘pick and shovel’ play in the AI chip gold rush, the company has been riding the wave of rapid growth. Since the release of ChatGPT, the stock has surged by an impressive 900%. The annual growth rate of Nvidia’s GPU revenue has been nothing short of remarkable, clocking in at 67% over the last three years. It is reasonable to expect that this trend will continue in 2025.
The AI Infrastructure Demand: A Concern for Some
However, not everyone is convinced about the continued growth trajectory of Nvidia and the AI infrastructure demand. There are fears that as soon as the tech companies change their spending plans, the demand for AI infrastructure could stutter. This scenario forms the foundation of the Nvidia bear thesis.
The End of Moore’s Law
To understand the potential for future GPU revenue, we need to delve into the underlying technology driving this revenue. For over half a century, the growth of the semiconductor industry was governed by Moore’s law. According to Gordon Moore, co-founder of Intel, the number of transistors on a microchip would double every two years. This exponential growth was driven by the ever-increasing need for greater computing power.
The Relevance of Moore’s Law in Today’s Era
However, technological advancements have changed the game. We can now increase the transistor count far beyond what was previously thought possible. But despite this, the driver behind Moore’s law – the ever-increasing need for greater computing power – is more relevant than ever.
The Llama 3 Model: A Case in Point
This is exemplified by Meta Platforms CEO Mark Zuckerberg. His company released the Llama 3 model in April 2024, with a subsequent version, Llama 4, set to launch early this year. What’s striking is that even though the two models are only less than a year apart, the computation power required to progress from one model to the next is an astonishing 10 times greater!
The Need for Increasing Computing Power
This trend is not unique to Meta Platforms alone. The major tech companies in the US continue to invest heavily in capacity to cater to this increasing computing power requirement. Their reasoning is simple: they need to develop the technology before someone else does. A headstart in AI can make a ton of difference.
The Investment Numbers Speak for Themselves
This is demonstrated by Meta’s investment of $8.5 billion in the second quarter of last year, when they released the Llama 3 model. This spending was 33% higher than the same period in the prior year. When scaled to other tech companies, it becomes clear why Nvidia continues to be a big beneficiary of the AI race.
Nvidia’s Dominant Position
At a staggering 90% market share, Nvidia is the company that will provide 10x computing power to all these tech companies (and later much more). None of them can afford to slow down, as it would give competitors a massive advantage. If they don’t spend the money, they risk losing the AI race.
Nvidia’s Popularity Among Hedge Funds
As per our database, 193 hedge fund portfolios held NVDA at the end of the third quarter, up from 179 in the previous quarter. While we acknowledge the potential of NVDA as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns within a shorter timeframe.
The Cheapest AI Stock: A Promising Alternative
If you are looking for an AI stock that is as promising as NVDA but trades at less than 5 times its earnings, we recommend checking out our report on the cheapest AI stock. This alternative offers greater promise for delivering higher returns within a shorter timeframe.
Conclusion
In conclusion, Nvidia’s position as the leader in GPU manufacturing and the AI chip gold rush is not likely to change anytime soon. The company’s dominance in providing computing power to tech companies ensures its continued growth. However, we believe that some AI stocks hold greater promise for delivering higher returns within a shorter timeframe.
Recommendation
If you are looking for an alternative to NVDA with similar potential but at a lower valuation, we recommend checking out our report on the cheapest AI stock. This investment offers greater promise for delivering higher returns within a shorter timeframe.
Full Disclosure: None.
