Nvidia (NASDAQ: NVDA) has been among the many finest performing stocks the past few years, as demand has skyrocketed for its graphics processing units that help construct out artificial intelligence (AI) infrastructure.
The company is used to seeing high demand for its products, so it was noteworthy when in a recent CNBC interview, CEO Jensen Huang called demand for chips based on its latest Blackwell architecture “insane.”
Let’s take a greater have a take a look at Huang’s comments and what it could mean for the stock.
“Insane” Blackwell demand
Blackwell is the most recent architecture for Nvidia’s graphics processing units (GPUs). The company introduced it earlier this 12 months, saying it was the world’s strongest chip and that it would help customers run their real-time generative AI large language models (LLMs) at much lower cost and energy consumption than its predecessor chips.
Huang told CNBC that after an initial delay due to a minor design flaw that affected manufacturing, Blackwell is in full production and going as planned.
He then explained why the company decided to hurry up the pace of its innovation cycle to yearly, saying that if it would probably increase performance by two to three times every yr, it’s going to extend revenue and reduce costs and energy consumption for its customers every yr.
Undoubtedly this can even profit Nvidia. It’ll keep it inside the lead in a fast-moving technology, while also maintaining high demand and pricing power. The company already announced its next GPU architecture, called Rubin, scheduled for 2026.
At an estimated cost of $30,000 to $40,000 per chip, having “insane” demand for Blackwell bodes thoroughly for the company. When it introduced the technology, it said that quite a lot of leading tech firms were already set to adopt Blackwell, including Alphabet, Amazon, Dell, Meta Platforms, Microsoft, OpenAI, Oracle, Tesla, and xAI. That’s quite a lot of large firms fighting over Nvidia’s latest GPUs.
Demand is unlikely to slow
Based on the actions of Nvidia’s customers, it doesn’t appear that demand for its GPUs is liable to decelerate anytime soon.
For example, Oracle executive chairman Larry Ellison was asked on the company’s second-quarter earnings call whether the demand for computing power would slow if there’s a transition from AI training to AI inference. He replied that there was likely no end in sight over the next five to 10 years for demand as firms battle for AI technical supremacy. His company, for example, plans to double its own capital expenditures (capex) for fiscal 2025, which ends next May.
Meanwhile, Alphabet and Meta Platforms said there’s more risk by underinvesting in AI infrastructure than by overinvesting. Each firms are spending heavily on AI-related capex, with Meta already saying it expects its 2025 budget to be significantly higher than in 2024.
Cloud computing leaders Amazon and Microsoft are pouring money into data centers to take care of up with AI demand, while start-ups OpenAI and xAI are spending a boatload of money to develop more-advanced AI models.
This race for more sophisticated AI models is creating the need for exponentially more computing power to educate them. That power is provided by GPUs, which most actually were designed by Nvidia.
For example, Meta says its Llama 4 LLM would likely need 10 times the GPUs as its predecessor Llama 3, while xAI’s Grok-3 AI model requires five times as many GPUs to be trained as Grok-2 needed.
Is Nvidia stock a buy?
All of this points to a necessity for lots more GPUs in the long term. On the earth’s race for increasingly computing power, no company is in a greater position than Nvidia. Besides the domination of its chips, there’s the wide moat created by its CUDA software, which way back became the de facto platform to program GPUs.
On the equivalent time, the stock stays to be inside your means despite its parabolic performance the past few years. Trading at a forward price-to-earnings ratio (P/E) of about 31 based on next 12 months’s analyst estimates, and a price/earnings-to-growth ratio (PEG) of 0.87, the stock is attractively priced given the demand that appears to still be ahead for its GPUs. A PEG under 1 is mostly viewed as undervalued, and growth stocks will often have PEGs well above 1.
With Nvidia talking with reference to the insane demand for its Blackwell chips and its customers continuing to ramp up their AI spending, the stock stays a buy.
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Nvidia’s CEO Says Demand for Its Recent Chips Is “Insane.” Is It Time to Buy the Stock? was originally published by The Motley Idiot