Nvidia (NASDAQ: NVDA) was one of the best performing stocks in 2024. It even dwarfed the returns of the Nasdaq Composite index in one year the index itself returned an incredible 28.6%. Its stock price soared as the market became buoyed by consistent triple-digit revenue gains that led to triple-digit net income gains. That led to a 171% increase in Nvidia's stock price in 2024. It also pushed the stock's price-to-sales ratio to 30.
Those who might think that means the stock is now overpriced should look at the opportunity that still lies ahead. Plenty of opportunity can overpower a high P/S. One chart might help explain.
Big tech companies continue to ramp up spending to build artificial intelligence (AI) infrastructure. Microsoft a Amazon each recently announced commitments to invest $80 billion and $11 billion, respectively, in the coming months. The investments are for data centers to train AI models, and distribute AI and cloud applications. That's because the market for Productive AI it is expected to grow tenfold over the rest of the decade.
Productive AI has a wide variety of applications. It is already being used to generate content and enhance creativity. Businesses use it to improve customer experiences by tailoring content and services to individual preferences. It can enhance existing data, improve cost-efficiency, foster innovation, and assist with simulations and planning. Investors themselves are using generative AI for several reasons.
Nvidia will be a major beneficiary of the investments to build the necessary infrastructure. Its Blackwell architecture is already in high demand, and the company will have its new Rubin platform available next year to succeed Blackwell.
CEO Jensen Huang also introduced a new desktop supercomputer at the recent CES conference in Las Vegas. Researchers, data scientists, and even students can use the $3,000 unit. It shows that Nvidia is expanding the market for its advanced chips beyond just hyperscaler data centers.
With a rapidly growing market for productive AI and innovative products, Nvidia has enough business opportunity ahead to justify the high valuation.
Before you buy stock in Nvidia, consider this:
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Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $832,928!*
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