It's impossible to predict what will happen with any company from day to day, let alone what will happen one year from now. But as any investor will tell you, part of picking stocks involves looking at how the company that stock represents is making money, what advantages the company has, and then determining whether these things may continue.
With that idea in mind, it's a good time to take a closer look at Nvidia (NVDA +1.95%) -- a very hot semiconductor stock -- and try to figure out if the company's current strengths are likely to continue over the next year.
Nvidia is already an established leader in a new market
Roughly a year ago, artificial intelligence (AI) came to the forefront of many mainstream investors' attention after the release of OpenAI's ChatGPT. Before the large language model-based chatbot was unveiled, AI was something a lot of tech companies dabbled in, but most weren't focusing all of their attention on it.
Image source: Getty Images.
However, the launch of ChatGPT completely changed the narrative. First, it showed investors -- and, frankly, many leading tech companies -- that large language model (LLM) chatbots were far further along than previously thought. This mattered for investors because it showed that this AI tech was so novel and advanced that the world's leading tech companies, including Alphabet's Google, were seemingly caught flat-footed.
Here's where Nvidia comes into this story. The company makes high-performance graphics processing units (GPUs) that were already being used by Google, Microsoft, Meta Platforms, and others for their AI data centers before ChatGPT arrived. New Street Research estimates that Nvidia's semiconductors have about 95% of the artificial intelligence machine learning market.
So, Nvidia was already a leader in AI chips when ChatGPT (and all the services around it) caused tech companies to begin ramping up their own AI data centers. Because Nvidia was already the leader in AI processors, companies naturally chose Nvidia chips. And this resulted in a huge benefit for the company: Nvidia's data center revenue soared 171% to $10.3 billion in the second quarter of fiscal 2023.
Think about this for just a second. In just 12 months of AI taking off, Nvidia more than doubled its revenue from this emerging tech trend. That's no coincidence. Nvidia had already worked for years to make some of the best AI chips -- now, it's seriously benefiting from them like never before.
Nvidia's growth engine is just revving up
All of the above leads me to the next point: Can Nvidia continue to benefit from this chip demand? Over the next year, I think it can, because tech companies of all sizes are now pouring money into AI data centers to try and keep up with each other.
Recent estimates show that the market for AI semiconductors will grow from $28 billion this year to an estimated $165 billion by 2030.
Tech companies have already shown -- based on Nvidia's data center growth I mentioned in the above section -- that Nvidia will likely significantly benefit from this demand because it's already a leader in AI chips.
NASDAQ: NVDA
Key Data Points
To hold onto this lead, Nvidia continues to introduce new tech innovations -- including its recent GH200 Grace Hopper Superchip platform -- that keep it ahead of competitors. Nvidia says this new chip platform is designed for some specific artificial intelligence applications, including large language models and generative AI.
I'm not the only one thinking there's more room for Nvidia to run, either. The median 12-month price target for Nvidia's stock among 38 analysts is $645 -- representing a 59% increase from the stock's current price.
Nothing is guaranteed
No matter how compelling a stock may be or the advantages a company may have over its competitors, there's no guarantee that it will perform well over any given period of time. Nvidia is, of course, no exception.
But with the company's current lead in a very fast-growing AI semiconductor market, there's a good chance for Nvidia to continue benefiting over the next year and likely beyond.
