The Dow Jones Industrial Average has soared this year, much like the other two major benchmarks, on investor optimism about an improving economy ahead. Investors counted on a lower interest rate environment, and they won their bet as the Federal Reserve began cutting rates this fall. Against this backdrop, growth stocks and big industrial players took off, and Dow Jones stocks from American Express to Caterpillar climbed in the double digits.
But one stock in particular has advanced to the top of the Dow in terms of performance this year, and it just so happens to be a stock that recently joined the index. This player has climbed 2,300% over the past five years and is heading for a gain of about 170% this year. On top of this, the company's brightest days may not be in the past but may be just ahead and extend further down the road too. That's because its biggest catalyst is unfolding right now and could have significant impact on earnings in the quarters to come. Let's meet this top stock that might keep on winning.
Image source: Getty Images.
An artificial intelligence empire
Before I give away the name of this player, I'll offer you one more clue. This is a technology leader that in recent years has built an empire in the hot-growth area of artificial intelligence (AI), and it now dominates the AI chip market, holding 80% share. I'm talking about Nvidia(NASDAQ: NVDA), a company that sells graphics processing units (GPUs) to some of today's biggest AI companies like Meta Platforms, Amazon, and Oracle.
GPUs power key AI tasks such as the training and inferencing of models. Along with these tools, Nvidia has constructed an entire portfolio of related products and services. This has helped the company deliver triple-digit gains in revenue and profit in many recent quarters, with earnings reaching record levels into the billions of dollars.
In the latest quarter, Nvidia's revenue topped $35 billion, reaching well beyond its annual revenue level as recently as the fiscal 2023 year. Now you may be wondering why Nvidia's leadership is so strong and revenue is so high. After all, it isn't the only seller of AI chips on the block and faces competition from giants like Advanced Micro Devices and Intel.
Nvidia's strength is linked to the fact that it sells the most powerful AI chips and has committed to regular innovation to maintain its position. Customers aiming to win in the AI revolution want the best possible materials to help them reach their goals, so they've proven they're willing to pay more and even wait for Nvidia products. As evidence of this trend, Oracle co-founder Larry Ellison recently said he and Tesla chief Elon Musk "begged" Nvidia CEO Jensen Huang for more GPUs.
So, things are looking bright for Nvidia. And that's why it wasn't too surprising when the Dow Jones Industrial Average invited Nvidia to join last month.
A game-changing product
Of course, some investors worry that after such gains, Nvidia may decline in the coming year. But there's reason to be optimistic about what's ahead for the company for one particular reason: A major catalyst lies on the horizon, and this is the launch of Nvidia's Blackwell architecture.
The company is ramping production now, in the current quarter, and even expects billions of dollars in revenue from Blackwell during this first quarter of commercialization. Demand has been "insane," Huang said in a CNBC interview this fall, and the company is working nonstop to meet it. Blackwell is a customizable platform with seven different chips, networking options and more -- and it could become a game-changer for users.
What's particularly exciting for Nvidia is that, as mentioned, Nvidia will start to generate revenue immediately. Even during a launch period which results in extra expenses, the company expects to maintain extremely high margins. Nvidia predicts its current gross margin in the mid-70% range will only decline to the low-70% range during the launch period. This means Nvidia will continue to be highly profitable on sales.
It's true that Nvidia shares aren't dirt cheap today at 45 times forward earnings estimates. But they aren't expensive either considering the company's market leadership, focus on innovation, and profitability. So they still make a solid buy at these levels and have room to run.
Will the gains come next year following the Blackwell release? It's possible. But if they don't, that's OK; Blackwell and future products from Nvidia have what it takes to supercharge revenue over time, and that could result in supercharged stock performance over the long run too.
Should you invest $1,000 in Nvidia right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. American Express is an advertising partner of Motley Fool Money. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adria Cimino has positions in Amazon, American Express, Oracle, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Intel, Meta Platforms, Nvidia, Oracle, and Tesla. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
