NVIDIA (NASDAQ: NVDA) Investors largely consider it a graphics processing unit (GPU) stock. That is, the company primarily manufactures, markets and sells GPUs: specialized electronic circuits that make everything from modern gaming to image rendering possible.
And while GPUs are critical components for a wide variety of industries, right now only one industry really matters to Nvidia and its investors: artificial intelligence (AI). Of course, Nvidia has been perhaps the most popular AI stock globally in recent years. But as the figure discussed below demonstrates, this is no longer just a growth opportunity for the company. Nvidia’s future will depend almost entirely on what happens with its artificial intelligence infrastructure business.
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Right now, the world is experiencing unprecedented growth in data center construction. Data centers, at least for now, consume a lot of energy. That’s why we’re also seeing considerable interest in new energy technologies, such as small modular nuclear reactors. But what data centers need as much as power are GPUs. Nvidia GPUs are largely considered the best on the market. That’s why data center and cloud infrastructure operators are scrambling to buy as many Nvidia chips as possible.
Historically, Nvidia’s GPU revenue comes from a variety of sources. But last quarter, $62.3 billion of its $68.1 billion in total revenue came from data center customers. And while these data centers also serve a variety of end markets, experts are in no doubt about what is causing their rapid expansion: AI.
“As technology companies rush to develop cutting-edge artificial intelligence (AI) models, data centers have become some of the most important infrastructure in the world,” a recent study concludes. Goldman Sachs report. “Over the next five to six years, we forecast substantial demand growth in the global data center market.”
So while the market has long viewed Nvidia as an AI beneficiary, that’s no longer the whole story. Almost all of Nvidia’s revenue now comes solely from data center customers, which are struggling to grow due to rapidly increasing demand for AI. Simply put, Nvidia’s investment thesis is now almost entirely focused on AI. And it’s not just focused on the growth of AI applications and services. The company’s future will depend specifically on the continued construction of data centers designed to meet the needs of these data centers AI clients.