Few companies are most important to the proliferation of artificial intelligence (AI) technology. NVIDIA (NVDA 4.06%)Even before AI became a hot trend in the business world, Nvidia invested heavily in technology.
Nvidia plans to benefit greatly from wider adoption of AI systems, as it has multiple products that are critical for AI to succeed. It also helps other companies create AI solutions, making it an important link in the AI chain.
Nvidia Has Multiple AI Solutions
Nvidia started by creating a graphics processing unit (GPU). Initially, this hardware was used almost exclusively to quickly process the intensive calculations required to create high-quality graphics. Since then, its efficiency in handling large amounts of computation has been exploited in many applications, such as running engineering simulations, mining cryptocurrencies, and training AI models.
Most AI supercomputers don’t just utilize one or two GPUs. Instead, it features thousands of arrays. for example, meta platform scales AI Research SuperCluster from 6,080 GPUs to 16,000 GPUs, increasing performance by 250%.
But most companies don’t have the resources or the need to create a supercomputer of that size. That’s where his Nvidia’s DGX cloud comes in.
Nvidia’s cloud service allows clients to sign up for a specified amount of AI computing power. Since you’re buying from Nvidia, you don’t have to worry about your equipment getting old. In addition, its AI training service offers multiple tools such as workload management and collaboration, giving clients everything they need to efficiently train their models.
But this is just one step in the process of rolling out AI-powered products.
Nvidia also has multiple AI tools, including text generation, chatbots for customer support, and protein prediction for chemists.
Back in the day, Nvidia would sell a GPU to a customer and essentially end the deal with that customer until the customer was ready to buy another GPU. Currently, we are proceeding with subscriptions, and transactions with clients utilizing the AI framework are progressing smoothly.
This paints a rosy picture of Nvidia’s upswing, but the stock is already trading as if it accomplished its mission.
Nvidia’s business is not doing well
Contrary to what many people involved in AI adoption think, Nvidia’s business is struggling. Overall revenue declined 21% in the fourth quarter of 2023, which ended January 29, due to a weak PC market. Additionally, revenue from our data center segment (which includes AI solutions) increased 11% year-over-year. , but fell 6% in a row. The segment has historically never suffered a quarterly impact, so investors will be paying close attention to the results when Nvidia reports its fiscal first quarter results on May 24. is needed.
Declining sales also hit Nvidia’s profit margins hard. His earnings per share (EPS) in the last quarter fell 52% to $0.57. This pushed the price/earnings ratio (P/E) to an unusually high level.
NVDA PE ratio data by YCharts.
Nvidia is currently not optimized for profit, so this may be a metric not worth considering. Instead, the investor should measure it based on his P/E ratio or price-to-sales (P/S) ratio in the future and see how the company stacks up from a historical perspective. there is. However, both of these indicators have reached relatively high levels.
NVDA PS Ratio data by YCharts.
Trading at 26 times its revenue, Nvidia is valued higher than many of the much faster-growing software companies. What’s more, his P/E for that future shows the stock is much more expensive than most of its past.
Nvidia will play a big role in the world of AI tech, but given its already strong reputation, we are skeptical about how much the stock will go up. Valuations do not determine whether to sell stocks, but can inform decisions about position sizing. I keep his Nvidia position relatively small because Nvidia has reached nosebleed levels. That way, if valuations plummet, you’ll be safe. But even if I was wrong and the stock continued to rise, I could still make a profit.
Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platform CEO Mark Zuckerberg, is a member of the Motley Fool’s board of directors. Keithen Drury has a position at his Nvidia. The Motley Fool US headquarters has positions in and recommends Meta Platforms and he Nvidia. The Motley Fool’s U.S. headquarters has a disclosure policy.
