Nvidia’s annual shareholder meeting is fast approaching. What does it mean for investors?
Artificial intelligence (AI) is a truly revolutionary technology that has captured the imagination of investors like few things before. This is a double-edged sword, even if the technology is indeed here to stay. If we learned anything from 2000, it’s that too much hype about new technology, without the economic means to back up the lofty valuations, is dangerous territory to venture into.
I don’t want to draw too much of a parallel here — there’s plenty of reason to believe this isn’t a second-round dot-com bubble — but it’s always prudent to maintain a healthy skepticism during a boom. All eyes — skeptics and believers alike — are lit up NvidiaS ‘ (NVDA -3.22%) the next annual meeting of shareholders.
On June 26, 2024, the head of the AI ​​revolution will hold the meeting, discussing strategy and holding votes on action items such as board approvals. Annual general meetings don’t typically move the needle as much as earnings reports, but it’s still an important event that can help shed light on what the future holds for Nvidia and the market as a whole.
So with the meeting fast approaching, is it a good time to get on the Nvidia train? Here are three reasons why the stock still looks strong.
1. Nvidia has a lot of money to play with
While the company has risen to stardom and proven how profitable the business is, its competition wants a piece of that profit. The threat of one AMD OR Intel capturing and eating the market share that Nvidia enjoys close to 80% is real and should be taken seriously. However, Nvidia has great resources to protect itself through continuous innovation.
In technology, having the best product goes a long way. AMD and Intel need to produce a product comparable to Nvidia’s if they hope to chip away at its market share. That takes money — lots of it. AMD spent $1.5 billion on research and development (R&D) last quarter, while Nvidia spent $2.7 billion. Remember, Nvidia is already in pole position; it has the best technology on the market and is still outspending AMD almost two to one.
Intel, on the other hand, is beating both, with $4.4 billion last quarter. The catch here is that these expenses are putting Intel in the red. How long can he keep it up?
Take a look at this chart showing the free cash flow (FCF) of these companies. FCF is a company’s earnings after deducting operating expenses and capital expenditures (the money a company spends to grow) and is an indication of how much room a company has if it wants to, say, increase R&D spending .
Free NVDA Cash Flow Data from YCharts
2. The market as a whole is growing rapidly
So if we accept that Nvidia has the resources to protect itself from its main competitors, we can assume that Nvidia can maintain or increase its market share. Of course there are more factors, but it’s not an unreasonable assumption.
Statista.com predicts a compound annual growth rate (CAGR) for the AI ​​market overall of around 28.5% through 2030. That’s a seriously fast growth rate, albeit slower than the lightning speed at which the company has increased recently. However, that would be an incredible growth rate to sustain.
This is an estimate for the entire market — not just semiconductors, which are Nvidia’s bread and butter — so this is a very rough measuring stick. The semiconductor segment may have a lower CAGR rate than this. However, this brings me to my next point.
3. Nvidia isn’t resting on its laurels — it’s expanding its revenue streams
There’s no doubt that what has led to Nvidia’s massive success as of late is selling its powerful AI-enabled chips, but the company sees a future beyond that. Nvidia is trying to build an entire AI ecosystem. It is in partnership with companies like vein to provide full-scale, on-premises, AI computing solutions. It is building end-to-end technologies and platforms designed for autonomous vehicles, humanoid robotics and drug research. There’s more, but I’ll stop here. The point is that Nvidia aims to position itself at the center of all things AI, as a star that other companies orbit around, and not just another link in the chain.
Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.