3 Reasons Why Investors Should Continue Betting on NVIDIA Stock

Tyrik Torres

Tue, Nov 21, 2023, 5:35 PM 4 min read

Nvidia (NASDAQ:NVDA) has been one of the best-performing stocks of 2023, with a staggering gain of more than 240% year to date. The chipmaker has been riding high on the booming demand for its artificial intelligence (AI) solutions, which power some of the most advanced and popular applications in the world, such as OpenAI’s ChatGPT and other “generative AI” platforms. These platforms run on Nvidia’s top-tier GPUs, which offer superior performance and efficiency for processing complex AI tasks. Needless to say, Nvidia stock has had a good tenure.

Nvidia’s stock price has approached where it was before the broad sell-off after July when investors feared that the chip stock and its technology sector peers were overvalued. However, Nvidia has proven its resilience and innovation, and it still has plenty of room to grow in the next year. Here are three reasons why investors should continue betting on Nvidia’s stock in 2024.

The Chip Slump is Coming to an End

A businessman stuck in the sand on the beach looking at his watch.

Source: Shutterstock

The global semiconductor industry has been struggling with end-market demand since 2022, largely because of the amount of pandemic-era spending on consumer electronics. Because so many consumers bought a laundry list of electronics, consumer tech companies and their semiconductor counterparts have experienced less demand and higher inventory levels.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

However, there are signs that the chip slump is coming to an end, according to TSMC (NYSE:TSM), the world’s largest contract chipmaker and Nvidia’s supplier. TSMC’s production and capex guidance came in above Wall Street’s estimates with capital expenditures slated to be $32 billion for the full year. Chief Executive Officer C. C. Wei mentioned TSMC was hoping for the chip market to hit a bottom “very soon.”

These expectations of renewed market demand hinge upon China’s economic recovery and United States-China relations. The economic recovery appears to be gaining more steam as third quarter economic data, and relations between the world’s two largest economic powers seem to be improving. These developments could spell good news for Nvidia’s future. Once the slump is over, Nvidia stock is soar back to the throne.

Nvidia Stock Will Remain Dominant Even as AMD Enters the AI Market

Nvidia is not only the leader in discrete GPUs for gaming PCs and data centers, but also the undisputed king of AI chips. According to a report by Omdia, Nvidia had an 81% market share of AI chips used in cloud and data centers. Nvidia’s dominance in AI chips is based on its superior technology and software ecosystem. The chipmaker’s CUDA platform provides a unified framework for developers to create and run AI applications on its GPUs. Also, Nvidia’s TensorRT software enables fast and efficient inference of AI models on edge devices.

Nvidia faces some competition from AMD (NASDAQ:AMD), which is set to launch its first AI-focused GPU, the Instinct MI200, in early 2024. However, Nvidia has a strong lead over AMD in terms of software support and customer loyalty, which could make it hard for AMD to gain significant market share in the short term.

Demand for AI Applications Continues to Soar Unabated

The demand for AI applications is not abating anytime soon. According to IDC, the global spending on AI systems will grow to $300 billion in 2026, growing at a 27% CAGR, at a compound annual growth rate (CAGR) of 20.1%. The main drivers of this growth are cloud computing, big data analytics, computer vision, natural language processing, speech recognition, machine learning, and deep learning.

Nvidia is well-positioned to benefit from this trend, as it offers a comprehensive portfolio of products and services for various AI domains and industries. For example, it powers some of the most popular cloud platforms for AI development and deployment, such as AWS (NASDAQ:AMZN), Azure (NASDAQ:MSFT), and Google Cloud (NASDAQ:GOOG). The chipmaker also provides specialized solutions for autonomous vehicles, healthcare, robotics, smart cities, gaming, entertainment, and education.

The GPU maker has delivered record earnings results to investors in 2023, primarily due to the robust demand for server GPUs and AI-powering chips like Nvidia’s A100 and H100 chips. Clearly, there are plenty of reasons why you should stick with Nvidia stock.

On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.