Adria Cimino, The Motley Fool
5 min read
In This Article:
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Tech stocks known as the "Magnificent Seven" led market gains last year.
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One particular AI leader rose 800% over three years but still has plenty of room to run.
A group of technology stocks, known as the "Magnificent Seven" -- a nod to the 1960 Western -- led stock market gains last year and has started to rebound in recent times. Which one makes the best buy for the second half?
The answer to that question is Nvidia (NASDAQ: NVDA), even though the stock has already climbed 800% over the past three years. Let's find out why this top artificial intelligence (AI) stock may still be in the early days of its growth story.
Nvidia has played a key role since the first days of the AI boom, and this is because it designs the crucial element that makes AI work: chips. They're known as graphics processing units (GPUs), and they power the fundamental step of training AI models, a process that allows those models to then handle complex tasks and solve real-world problems. So, without these chips, we wouldn't have AI. This helped Nvidia's revenue take off a few years ago, as you can see in the chart below.
In Nvidia's earlier days, it primarily served the video gaming market, which resulted in progressive growth, but revenue levels were a far cry from today's AI-driven revenue. This is because companies realize the potential of this technology to save them time and money and even help them develop game-changing products and services, so they're pouring investment into AI. And Nvidia, as the leading chip designer, is benefiting. This potential is further illustrated by forecasts calling for the AI market to reach into the trillions of dollars in a few years from now.
Importantly, Nvidia isn't just about GPUs. The company has built an AI empire, creating software and networking tools, and it even aims to power the humanoid robots of tomorrow. This expansion is key to Nvidia's growth because it enables the company to benefit from every stage of AI development -- not just the early days of infrastructure ramp-up.
Meanwhile, Nvidia has also put the focus on innovation to ensure it stays ahead of its rivals. It has pledged to update its chips yearly and has already offered investors visibility into planned launches over the coming three years. Though rivals are carving out market share -- for example, Advanced Micro Devices recently reported a 57% increase in data center quarterly revenue -- Nvidia's innovation should keep it in the top spot. The enormous demand for AI means that others, like AMD, can succeed without truly encroaching on Nvidia's territory.
