Investors in Nvidia's stock received positive updates from the company's CEO, Jensen Huang.
Jensen Huang, the visionary brain behind accelerated computing company Nvidia (NVDA 3.16%), has led the organization since its inception in 1993. His leadership has been instrumental in numerous breakthroughs, with the invention of the graphics processing unit (GPU) in 1999 standing out as a significant milestone. Nvidia GPUs have long been the go-to for rendering graphics in 3D design and gaming applications, and more recently, they've found a new home in complex data center workloads like training large language models and running generative AI applications.
Last week at CES 2025, Huang's keynote speech highlighted Nvidia's vast product pipeline, indicating that the tech giant is far from reaching its potential. The focus on technology innovation at CES made it clear that Nvidia remains at the forefront of the sector.
Generative AI: Just the Beginning
Generative AI made waves on Wall Street when ChatGPT, the conversational application, launched in late 2022. Its quick viral success set off a chain of events leading to a surge in demand for Nvidia GPUs. The company reported impressive triple-digit earnings growth in the last six quarters, and its share price has skyrocketed 840% in the past two years.
Investors may question the longevity of generative AI, viewing it as a short-term catalyst or even a bubble. However, this perspective is flawed. The internet has only grown more essential since its inception, and the same will be true for artificial intelligence. As such, the generative AI boom represents just the first phase of an ongoing technological revolution that Nvidia is poised to capitalize on.
Physical AI: The Next Frontier
During his CES speech, Huang predicted that "the next frontier of AI is physical AI." While generative AI can handle media creation and manipulation, physical AI provides machines with the ability to understand, navigate, and interact with the physical world. Aside from autonomous robots, Huang suggested that the first intelligent robots people would encounter would be autonomous cars.
Nvidia is well equipped to explore this new frontier of technology, thanks to its extensive product offerings. Its GPUs serve as the supercomputing infrastructure required for AI model training, while its Drive platform and AGX systems provide the software development tools and in-vehicle computing power needed for self-driving applications.
The potential market for physical AI is massive. Analysts predict that global spending on AI in robotics will exceed $200 billion by 2035 and reach $1 trillion by 2040. Nvidia may very well seize a significant portion of this market share, given its strategic position and innovative technologies.
Nvidia's Valuation: Undervalued in the Current Market
Despite its impressive performance, some investors may view Nvidia stock as overvalued due to its robust growth in the past two years. However, a closer look at the company's earnings growth expectations and the current PEG ratio paints a different picture.
While Nvidia trades at 55 times earnings, Wall Street anticipates annual earnings growth of 38% in the next three years. With a PEG ratio of 1.4, the stock is currently much less expensive than it was before the generative AI boom began when the PEG ratio was 2.9.
As Nvidia continues to reap the benefits of the expanding autonomous vehicle and robotics markets, the stock remains a solid long-term investment opportunity. The company's strategic partnerships and innovative technologies position it well for the future, regardless of whether you believe in the generative AI boom or not.
- Jensen Huang, during his CES speech, discussed the role of supercomputing in Nvidia's future projects, highlighting the company's investments in GPUs for training large language models and running generative AI applications.
- Annual earnings growth of 38% in the next three years, as predicted by Wall Street analysts, suggests that Nvidia's stock, while currently trading at 55 times earnings, may be undervalued based on its PEG ratio of 1.4.
- As Nvidia explores the field of physical AI, with a focus on autonomous robots and self-driving cars, the company's extensive product offerings, including GPUs for supercomputing infrastructure and software development tools, place it in a strategic position to capture a significant portion of the estimated $1 trillion physical AI market by 2040.
- In the context of the generative AI boom and its impact on Nvidia's financial performance, Jensen Huang emphasized that the surge in demand for GPUs is not just a short-term catalyst but the first phase of a broader technological revolution in the field of artificial intelligence, signaling a long-term growth potential for the company.
