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NVDA Stock: 4 Reasons Why This AI Chipmaker Is Poised to Dominate the Future

Nvidia (NASDAQ:NVDA) has become the runaway leader in providing computer chips that enable artificial intelligence, and many, if not most, significant companies globally are embracing AI. Also noteworthy is that NVDA stock has a significant first-mover advantage in the battle to become the preeminent provider of AI chips.

Moreover, AI is increasingly being used by data centers, from whom Nvidia generates a great deal of its revenue, and the Internet of Things phenomenon will also help Nvidia.

So, although NVDA stock may not go straight up going forward, given its elevated valuation, the shares should climb a great deal over the long term as the company largely dominates the future of AI.

The Runaway Leader of the Rapidly Growing AI Chip Space

According to one study, Nvidia now provides 95% of the chips that enable machine learning. The latter process enables computers to automatically gain more knowledge, allowing them to become more proficient at answering queries and analyzing data.

Moreover, Japanese investment bank Mizuho Securities reports that Nvidia’s market share in AI chips is about 90%,  and the bank  predicts that NVDA stock will “generate around $300 billion in AI-specific revenue in 2027.” That year, the bank expects Nvidia’s share of the category will be about 75%.

“With demand for generative AI accelerating, we see significant opportunities for hardware suppliers powering the higher compute needs for large-language models, particularly AI powerhouse Nvidia,” Mizuho wrote.

Also noteworthy is that 35% of global companies already utilize AI, while about 50% intend to start by the end of 2023.

Nvidia’s First-Mover Advantage Could Be Huge

Nvidia’s significant first-mover advantage could enable it to be the runaway leader of the AI space for decades.

In many other sectors, companies with the first-mover advantage have retained commanding market share for many years, even decades. Among the companies in the latter category are Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX), and Uber (NYSE:UBER)

Nvidia’s Revenue From Data Centers Will Be Boosted in More Ways than One

Data centers are using many of Nvidia’s chips to facilitate the use of AI by other companies. But data centers are also using AI themselves.

Indeed, according to the well-respected research firm Gartner, they are utilizing AI to help solve many of their problems, such as “increasing inflation, rising energy costs, and persistent labor shortages.” Data centers are also using AI to make their operations more efficient.

Overall, Nvidia’s sales from data centers soared 171% last quarter versus the same period a year earlier to $10.3 billion.

The Internet of Things Trend Is Alive and Well

In 2022,” the number of global IoT connections” jumped 18% to 14.3 billion, and IoT Analytics predicts the total will surge an additional 16% this year.

Nvidia can monetize the Internet of Things trend with its Jetson Nano, a minicomputer that utilizes AI and allows developers to create their own IoT projects.  Moreover, the IoT trend increases the total amount of data processed globally, causing data centers to expand and buy more chips from Nvidia.

Finally, automobiles are an important, rapidly growing sector within IoT, and Nvidia has a robust Automotive unit that sells chips used in vehicles. Given the rapid growth of chip-intensive systems, including ADAS and self-driving applications, in cars, Nvidia’s auto business has a very bright future, in my view.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.  The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines

Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.