Nvidia’s Dominance in AI Chip Market Makes It a Strong Buy Before Earnings Report

Based on the latest information available, the author suggests that readers should consider buying Nvidia stock before its first-quarter earnings report on May 22. The company is a dominant player in the AI chip market, holding between 80% and 95% market share in AI chips, according to analysts. Nvidia’s graphics processing units (GPUs) are the gold standard for accelerating complex data center workloads, making it a one-stop shop for artificial intelligence. The company’s revenue and non-GAAP net income grew by 265% and 491%, respectively, in the fourth quarter, and management provided guidance for the first quarter that significantly exceeded analysts’ expectations. Despite this, the stock’s valuation at 74 times earnings is currently considered pricey. However, Wall Street expects the company to grow earnings per share at 35% annually over the next three to five years, which could result in annual earnings growth of around 30% through the end of the decade. The author advises investors to start with a small position and wait for a cheaper multiple, but also notes that there’s a potential inflection point on the horizon. If shares decline following the earnings report, investors should consider buying a bigger position. However, if the report exceeds expectations and guides above the consensus, shares could surge. Overall, the author suggests that Nvidia is well-positioned to benefit from the growing AI market, and other companies in this space may also present investment opportunities. Readers can learn more about these opportunities by subscribing to The Motley Fool’s Stock Advisor service, which has quadrupled the return of the S&P 500 since 2002*. The service provides regular updates from analysts and two new stock picks each month. *As of May 6, 2024.