NVIDIA Corp (NVDA)

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Why Investors Shouldn't Underestimate NVIDIA
By: The Motley Fool | May 3, 2021

NVIDIA (NASDAQ: NVDA) is a leading supplier of chips for companies that need to process massive amounts of data with artificial intelligence (AI) workloads. Its graphics processors facilitate technologies that consumers engage with every day, including recommendation systems, AI-powered chatbots, and much more.

After a sharp price rise over the last year, the shares look expensive at a price-to-earnings ratio of 89, but based on recent growth and the announcements NVIDIA made at its investor day on April 12, it's difficult to call NVIDIA expensive. The stock could have legs over the next five years and beyond, as it starts to offer software solutions to enterprises.

NVIDIA is leading the AI revolution

NVIDIA's revenue and earnings per share have grown significantly over the last five years, which has fueled a 1,600% rise in the share price during that time. Since fiscal 2017, NVIDIA's cash from operations has increased at an average annual rate of 37% per year.

NVIDIA has long dominated the market for gaming graphics cards, and just recently, investors gave NVIDIA a big thumbs-up after it unveiled its Grace CPU, the company's first central processor designed for data centers.

But what some investors might miss about NVIDIA's business is that it's not just high-powered chips that are fueling its growth. On top of chips, NVIDIA offers software and applications, which partly explains why profits are piling up.

NVIDIA is building platforms combining software and hardware that basically make it easier for organizations to use AI. It's sort of like Microsoft transitioning from MS-DOS to Windows in the 1980s, ushering in a wave of new consumers wanting to use a PC. In a way, NVIDIA is positioning itself to be the Microsoft of the AI revolution...

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