Here’s the Biggest Reason Nvidia Stock Could Keep Its Momentum Going for Years to Come | The Motley Fool

In the blockbuster 1997 movie Titanic, the character played by Leonardo DiCaprio stood on the bow of the ship and proclaimed, “I’m the king of the world!” Nvidia (NVDA 4.89%) is having that kind of a moment.

The company recently reported first-quarter revenue of $26 billion, up 262% year over year and a record high. Its earnings soared 628% to nearly $14.9 billion. Nvidia raised its quarterly dividend by 150%. It announced a highly anticipated 10-for-1 stock split. And its stock has skyrocketed more than 170% over the last 12 months.

Nvidia truly is the king of the artificial intelligence (AI) world right now in several ways. However, as the Titanic movie showed, king-of-the-world moments can be fleeting. Nvidia could have a better fate, though.

A better mousetrap

Ralph Waldo Emerson is widely credited as saying, “Build a better mousetrap, and the world will beat a path to your door.” He probably never stated those exact words, but the sentiment rings true. We’re seeing it fulfilled with Nvidia.

There’s no question that the world is beating a path to Nvidia’s door. Every major cloud service provider uses Nvidia’s GPUs to train and run AI apps. Nvidia CEO Jensen Huang noted in the company’s Q1 earnings press release, “Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets.” And these companies are buying Nvidia’s chips, too.

It’s not just tech giants like Microsoft, Alphabet, and Amazon that are flocking to Nvidia. Huang said in the company’s Q1 earnings call that between 15,000 and 20,000 start-ups are Nvidia customers. He added, “[T]he list is just quite extraordinary.”

Why is all of this happening? Nvidia has built a better mousetrap. Elon Musk, CEO of Tesla and xAI (both Nvidia customers), summed it up, “There is currently nothing better than Nvidia hardware for AI.”

Nvidia’s innovation rhythm

Nvidia’s past and current success doesn’t guarantee future success. But the biggest reason why the company (and stock) could keep the momentum going for years to come is its pace of innovation.

Huang pointed to Nvidia’s “one-year rhythm” in the Q1 call. The company expects to launch new and improved AI chips every year. While there’s no shortage of rivals trying to take market share away from Nvidia, it’s going to be very difficult for them to keep up with the GPU maker’s speed in delivering new technology.

Nvidia will launch its Blackwell platform later in 2024. Blackwell’s architecture will support four times faster training of generative AI models with 30 times faster inference than Nvidia’s H100 GPUs. The platform will also have a 25x lower total cost of ownership (TCO) than the company’s Hopper chips.

No other chipmaker has technology that matches Blackwell. And Huang promised that more powerful chips would follow rapidly after Blackwell. Nvidia could keep its momentum going by continually building better mousetraps. If it can do so, the world will continue beating a path to its door.

Potential momentum-busters

While it will be difficult for competitors to beat Nvidia, it’s not impossible. Although Musk is a fan of the company’s GPUs, he also predicted on X (formerly known as Twitter) last year, “Nvidia will not have a monopoly on large-scale training & inference forever.” He’s probably right.

The currently sizzling demand for AI chips could also fizzle. Perhaps a major economic downturn could cause companies to slash their technology investments. Maybe AI won’t deliver enough return on investment to justify the costs.

If any of these scenarios play out, Nvidia’s momentum would almost certainly be derailed. However, I don’t have a sinking feeling about the company’s prospects. Instead, I suspect that Nvidia will remain king of the AI world at least through the end of this decade and probably beyond.