Nvidia (NVDA 0.25%) recently made a big move that grabbed the investment community's attention. The technology giant completed a 10-for-1 stock split last week, which lowered the price of each individual Nvidia share to about $120 from more than $1,200. This opened up the stock to a broader range of potential investors.
This was a much-awaited operation ever since Nvidia stock soared beyond $900. When the company announced the split during its earnings report last month, this news, along with skyrocketing earnings, pushed the shares beyond $1,000.
Nvidia has soared thanks to its leadership in the artificial intelligence (AI) chip market. Customers have been rushing to get their hands on the company's AI products and services, and this has transformed the stock into one of the hottest on the market. Now that Nvidia is trading at a lower per-share price after the stock split, is it a once-in-a-generation investment opportunity?
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The secret to Nvidia's success
How did Nvidia become so successful in the first place? The company, once known for powering the gaming industry's products with its graphics processing units (GPUs), saw the potential for GPUs to do even more. These powerful chips process multiple tasks simultaneously, making them perfect for AI uses such as the training and inferencing of models.
Nvidia turned its attention to serving AI customers and, as they say, the rest is history. These days, Nvidia still sells GPUs to the video game industry, but its biggest customers are in AI. In the most recent quarter, data center revenue topped $22 billion, far surpassing gaming revenue of $2.6 billion.
Importantly, profit has climbed -- in the triple digits from quarter to quarter -- and Nvidia also has expanded its margins. Gross margin widened to more than 78% in the recent quarter from about 64% a year ago.
Nvidia has built its dominance in the AI market thanks to the strength of its GPUs (they're the fastest out there), its broad offering of AI services (such as enterprise software), and the presence of its products across all the public clouds. If you're a potential customer, it's easy to find Nvidia.
There are a few things that should keep the company in this fantastic leadership position. First, it's already No. 1 and has strong brand strength, so the company is starting in a favorable position.
On the lookout for new trends
Second, Nvidia is attentive to new trends in the market and immediately takes steps to lead. A great example of this is sovereign AI, which involves countries creating their own AI using their own infrastructure and data.
Nvidia's Chief Executive Officer Jensen Huang has spoken publicly of the importance of sovereign AI, and the company already has signed deals to help certain countries along that path. Nvidia sees its revenue from sovereign AI, which amounted to zero last year, reaching the "high single-digit billions" this year.
Finally, Nvidia is likely to stay ahead, thanks to its "one-year rhythm" of bringing new higher-performance GPUs to market. So even if a rival releases a chip that's better than Nvidia's current one, it probably will launch a GPU that tops anything else on the market in a matter of months.
Though buying Nvidia products may cost more than buying those of rivals, CEO Huang argues that over time, "the highest performance is also the lowest cost." That's because running a data center is expensive and power-intensive, so by using the most efficient products, customers can save time and money.
All of these elements point to more growth ahead for Nvidia, and to brighten the picture even further, remember that the AI growth story is in its early days. This suggests demand should continue at current levels and could even strengthen over time.
A once-in-a-generation opportunity?
Considering all of this, is Nvidia a once-in-a-generation investment opportunity after the recent stock split, which offers investors with smaller budgets or who want to add a small amount to their existing Nvidia positions an opportunity? Today, you only need about $120 to buy one share. Nvidia probably has what it takes to climb again, so now may represent a once-in-a-generation buying opportunity for these investors.
And for everyone else? From a valuation point of view, nothing has changed. Nvidia still trades for 44x forward earnings estimates, as it did prior to the stock split. These only lower per-share prices through the issuance of additional shares to current holders and don't change the market value or anything fundamental.
That said, Nvidia's general strength may lead to a higher valuation down the road as the company continues to win in this high-growth market. And that means today, Nvidia could be a once-in-a-generation investment opportunity for any investor hoping to get in early (because so much more growth may be ahead) on a game-changing AI stock.
