Nvidia could also be greatest recognized for its GPU chips and knowledge heart companies, however the firm’s capabilities in AI software program should not be missed.
There is no such thing as a hotter inventory on the earth than Nvidia (NVDA -3.22%) proper now. The corporate’s H100, A100, and new Blackwell semiconductor chips are broadly considered superior to the competitors. Contemplating Nvidia’s spectacular roster of graphics processing items (GPU), the corporate is undoubtedly having fun with the second as generative AI purposes take off.
Whereas that is encouraging, buyers could also be shocked to study that Nvidia has many different companies past GPU chips and knowledge heart companies. Let’s dive into one among Nvidia’s secret, under-the-radar companies and assess why this particular operation could also be a very powerful of all.
Trying past chips and knowledge facilities
Nvidia experiences its income into two classes: compute and networking, and graphics. When Nvidia was based within the early Nineteen Nineties, the corporate’s authentic mission was to enhance graphics processing capabilities for video video games.
Whereas gaming remains to be a essential element of Nvidia, the corporate’s largest companies now sit underneath compute and networking. Admittedly, compute and networking — and gaming — are pretty normal terminologies. What do they really imply?
Based on Nvidia’s filings, the compute and networking section primarily consists of the corporate’s knowledge heart, robotics, and synthetic intelligence (AI) companies, whereas the graphics operation accounts for Nvidia’s GPU enterprise.
Through the firm’s first quarter of fiscal 2025 (ended April 30), compute and networking generated $22.7 billion in income — a rise of 408% yr over yr. One of many refined catalysts within the compute and networking enterprise is Nvidia’s compute unified gadget structure (CUDA) platform. CUDA is a program that permits builders to jot down software program purposes that work in parallel with Nvidia’s GPUs.
Whereas this may not seem to be a lot on the floor, the CUDA infrastructure is extremely necessary for Nvidia. Let’s discover out why.
Picture supply: Getty Photographs.
Why is CUDA necessary for Nvidia?
Proper now, business analysts estimate that Nvidia holds a staggering 80% market share of AI-powered chips. One main use case for AI chips pertains to coaching and inferencing AI fashions. Particularly, these purposes are wanted as a way to construct giant language fashions (LLMs) equivalent to ChatGPT, Anthropic, Claude, Gemini, and extra.
CUDA is so profitable for Nvidia as a result of it gives the corporate with a complementary service that may be layered on prime of its main GPU {hardware} merchandise. It is a main differentiator for Nvidia because it permits the corporate to promote each {hardware} and software program companies associated to AI growth.
Furthermore, as competitors throughout the chip area continues to warmth up, CUDA gives Nvidia with some flexibility past semiconductors. Moreover, contemplating software program tends to hold a lot larger margins than {hardware}, I am optimistic that Nvidia’s gross revenue and money movement profiles will not take a lot (if any) of a cloth hit ought to the corporate begin to lose a few of its market share within the chip area.
Is Nvidia inventory a purchase proper now?
Shares of Nvidia have soared 156% up to now in 2024. Not solely does this handily eclipse the beneficiant returns of the S&P 500 and Nasdaq Composite, however Nvidia briefly grew to become the most important firm on the earth by market cap this week.
NVDA PE Ratio knowledge by YCharts
Whereas this may suggest that Nvidia inventory has gotten dear, a take a look at the chart above may counsel in a different way. The corporate’s present price-to-earnings (P/E) a number of round 74 is definitely materially decrease than the place it was only a yr in the past.
This dynamic means that although Nvidia inventory has been hovering, the corporate’s income have elevated at a sooner tempo. Technically, this implies Nvidia inventory is cheaper now than it was final yr on a P/E foundation.
I see Nvidia as long-term name possibility on the AI panorama. On condition that the corporate has a commanding lead within the chip area, coupled with its CUDA software program enterprise, I feel Nvidia has a vivid future for years to return because it pertains to the continued proliferation of AI growth.
Though shares of Nvidia are experiencing some momentum proper now, long-term buyers should need to think about including to an current place or start constructing one.
Adam Spatacco has positions in Microsoft and Nvidia. The Motley Idiot has positions in and recommends Microsoft and Nvidia. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft and quick January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.
