It's been exactly two and a half years since OpenAI launched ChatGPT. Since this seminal moment, there has been no topic hotter in markets and the economy than artificial intelligence (AI). That's because everyone is realizing just how revolutionary this technology could be.
Consequently, there is insatiable demand for AI services among users, as well as AI-related infrastructure for businesses. No company has benefited more from this trend than Nvidia(NASDAQ: NVDA). Its shares are up an impressive 1,420% in the past five years (as of May 30).
Nvidia once again reported financial results that gave the market reason to cheer. The company generated revenue of $44.1 billion in the 2026 first quarter (ended April 27), which was up 69% year over year. That top-line figure exceeded expectations from Wall Street analysts. It was driven by Nvidia's thriving data center segment, which represents almost 90% of sales.
Profitability remains exceptional, with the net income margin at a phenomenal 43%. Adjusted earnings per share came in at $0.96 in the first quarter, again beating Wall Street analyst estimates.
The company's monster success has clearly resulted in the business building out a wide economic moat that protects its competitive standing. There are a couple of factors involved here.
First, the company has unmatched intangible assets when it comes to the design of its GPUs, as well as its CUDA software platform. Nvidia has developed technological know-how that has kept it ahead of the competition, particularly within these two areas.
And there are switching costs for its customers. Developers that get familiar with the company's hardware, software, services, and other AI tools are unlikely to change what they use. All of this supports its industry position.
Understanding the risks
With Nvidia reporting incredible financial performance every quarter like clockwork, it might be difficult for bullish investors to find any faults with owning the business. However, it's important to take a step back and try to identify key risks.
One area that could be concerning is that Nvidia has a high customer concentration, with so-called hyperscalers representing a large chunk of revenue. Every business wants a diverse and large group of customers, which reduces the power customers have when it comes to negotiating leverage, and lowers the risk should one of them leave.
Adding to this risk is the fact that these tech giants are working on developing their own chips, which one day might allow them to depend less and less on Nvidia.
Trade tensions between the U.S. and China are also something to pay close attention to. Export restrictions are directly hurting the chipmaker's sales, and it recorded a $4.5 billion charge in the first quarter due to excess inventory. Uncertainty remains, but Nvidia's growth is still superb.
An economic downturn, which many still fear is a real possibility in the near term, could crush demand for its GPUs. Spending on technology broadly, and AI specifically, has become such a massive part of the economy that any notable macro weakness could lead to pessimism from executives. And they could decide to dramatically cut planned spending until conditions improve.
It's important not to ignore these risks. Nvidia's ongoing momentum alleviates any concerns at the moment, though.
Gaining AI exposure in your portfolio
Anytime a new technology comes along, investors should always approach things with a bit of skepticism. That's because there is always an initial period of excitement that leads to bullish fever, resulting in expensive valuations. What's more, it's almost impossible to predict how things will play out.
However, as more time passes, I grow more optimistic about the staying power of AI. It seems every company is incorporating it in some way. Gargantuan sums of capital are flowing to the space. And there are new developments being introduced all the time. Of course, no one has any idea how this will impact society at large in the long run.
The takeaway is that it's probably a smart idea to consider gaining AI exposure in your portfolio. And with Nvidia shares trading at what I think is a reasonable forward price-to-earnings ratio of 31.6, the stock looks like a solid buy right now.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
