If you had to choose one company to determine stock market performance in 2023, you'd be hard-pressed to find a better one. Nvidia (NVDA 1.58%). The company's graphics processing unit (GPU) hardware has been at the heart of this year's incredible advances in artificial intelligence (AI) technology.
Powering OpenAI's popular services including ChatGPT, microsoft In addition to being very useful in spaces, it has also enabled a variety of high-performance applications.
Demand for Nvidia's technology also led to an explosive rise in the company's stock price. The processing specialist's stock price has soared about 220% year-to-date, and this performance has given the GPU leader a market capitalization of about $1.15 trillion, delivering huge returns for investors.
But as amazing as the rise of AI in 2023 was, this amazing technology is still in its infancy. Speaking recently at the New York Times' annual DealBook Summit, Nvidia CEO Jensen Huang said AI technology will be “quite competitive” with humans within the next five years.
This prediction is big news for AI investors and suggests that big jumps in relatively short time periods will continue to occur. What does this mean for Nvidia stock?
Nvidia is at the center of the AI revolution
Nvidia's graphics processing units were originally designed to enhance the visuals of high-end computer games and visual applications. But the company eventually discovered that its GPUs were also suitable for other intensive computing processes and could be used as the foundational hardware for cloud data centers. Additionally, advanced GPUs have also become the primary hardware element for running computationally intensive AI applications.
As impressive as ChatGPT and other AI apps are already, Huang's recent comments that artificial intelligence systems could match human capabilities within the next five years are not believable in the near future. It shows that more progress will be made than ever before. If his predictions are largely accurate, management's predictions also indicate an incredible demand outlook for the company's GPU hardware and accelerated computing services.
Nvidia stock still has room for incredible performance
Despite its explosive rise last year, NVIDIA stock may still have significant upside potential over the long term. The company delivered an unprecedented performance improvement in its quarterly report, reflecting both its own guidance and guidance issued by analysts.
For reference, Nvidia posted non-GAAP (adjusted) earnings per share of $2.70 in the second quarter on revenue of $13.51 billion. Meanwhile, analysts' average expectations were for revenue of $11.22 billion and earnings per share of $2.09 in the same period.
Despite showing incredible momentum in the second quarter, NVIDIA once again shattered Wall Street's expectations in the third quarter. The AI luminary posted adjusted earnings of $4.02 per share on revenue of $18.12 billion. This beat the average analyst estimate for his earnings per share of $3.37 and revenue of $16.18 billion.
This quarter, Nvidia expects revenue of about $20 billion, implying 231% year-over-year growth. Meanwhile, the company's midpoint target calls for a gross margin of 75% for the same period, up from the impressive 74% margin it already posted in the second quarter of this year.
Huang's comments suggest that NVIDIA may once again shatter expectations when it releases its next earnings report. More importantly, the CEO's five-year predictions appear to foresee changes in technology that will fundamentally change the way the world operates.
Nvidia currently controls about 90% of the market for high-end GPUs used to power AI and other high-speed computing applications. As can be inferred from such a dominant market share, the company's technology offers significant performance advantages over competing products.
If AI continues to make significant advances at such a rapid pace, over time Nvidia's already popular stock could prove to be quite cheap at today's prices.
Keith Noonan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Microsoft, the New York Times, and Nvidia. The Motley Fool recommends the following options: His January 2024 $45 short call against the New York Times. The Motley Fool has a disclosure policy.
