Demand for Nvidia’s new Blackwell and Rubin GPUs is off the charts.
Nvidia is well positioned to benefit from the acceleration of spending on artificial intelligence (AI) infrastructure.
It expects to generate $500 billion in cumulative revenue from chips and complementary products.
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Few companies attract the same level of attention as NVIDIA(NASDAQ: NVDA) does today on Wall Street. Over the past three years, investors have witnessed a generational shift of sorts: A chip designer that originally focused on improving graphics for video games has evolved into a major supplier of hardware for artificial intelligence (AI) data centers.
NVDA (TTM) earnings data from YCharts.
Insatiable demand for Nvidia’s graphics processing units (GPUs) has driven record sales and profits, which the company has reinvested in developing increasingly powerful architectures at a rapid pace, creating an unprecedented virtuous cycle.
Naturally, skeptics can’t help but wonder when this positive feedback loop will start to lose momentum. Fortunately, Nvidia CEO Jensen Huang just gave investors some details about the company’s prospects.
Spoiler alert: Nvidia is about to ramp up its operations at a whole new pace, and shareholders should prepare for more growth.
In late October, Nvidia hosted its annual GTC conference in Washington, DC. During the event, Huang presented his usual marketing masterclass by revealing the technical specifications of Nvidia’s new Blackwell Ultra and upcoming Rubin GPUs.
What investors didn’t anticipate was a financial preview of the impact these chips will have for Nvidia’s business. Huang said demand for Blackwell and Rubin is so high that Nvidia now has a $500 billion order book for these cutting-edge chips. The best part? All of these revenues are expected to be realized in the next five quarters alone.
Following news of this delay, investors flocked to Nvidia stock, boosting its market capitalization to over $5 trillion.
Image source: Nvidia.
It’s important to note that this $500 billion figure Huang offered does not qualify as formal financial guidance. Those forecasts are usually reserved for earnings calls or special press releases.
Another reason investors should take Huang’s comment with a grain of salt is because it was actually a bit hyperbolic.
Following his comments at GTC, Nvidia’s financial team was quick to present a more accurate and nuanced picture of the company’s overall data center business.
First, an estimated 30% of the Blackwell chip demand he cited relates to chips that have already been shipped, meaning Nvidia has already recognized a portion of the revenue that Huang implied was still in the pipeline.
Furthermore, Nvidia’s future data center revenue doesn’t depend solely on Blackwell and Rubin. Some of the expected sales also come from Nvidia’s ancillary networking products, such as InfiniBand and NVLink.
Reports suggest that the adjusted backlog figure is approaching $307 billion, which should be recognized over the next year or so, assuming there are no significant hiccups in Nvidia’s supply chain or reductions in the capital spending budgets of its key customers.
To me, focusing on the exact moment Nvidia recognized the $500 billion revenue figure is a bit pedantic.
Consider it from another perspective: Before the AI revolution, Nvidia generated less than $30 billion in total revenue annually. Now, its data center division alone generates more than that each quarter.
In other words, in three years, Nvidia’s chip empire has become a half-trillion-dollar business. This is an incredible achievement, regardless of when exactly the funds arrive in your coffers.
Going a step further, I think Huang’s comments shed light on a subtle detail that many investors overlook. That is, sell-side analysts may be underestimating demand for AI infrastructure and how that will translate into Nvidia’s future revenue growth.
Currently, it would appear that Nvidia’s trajectory will exceed Wall Street’s expectations in the coming years thanks to the explosive growth of data centers.
NVDA revenue estimates for current fiscal year data by YCharts.
In this context, Nvidia’s forward price-to-earnings (P/E) ratio of 30 looks pretty pedestrian. I believe Nvidia’s strong sales pipeline will continue to be supported by higher profitability, lending credence to the idea that growth investors will continue to buy shares and could send its valuation soaring to record levels.
In my opinion, Nvidia remains an attractive buy-and-hold opportunity for technology investors and should be considered for a core position in their long-term portfolios.
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Adam Spatacco has positions at Nvidia. The Motley Fool has positions and recommends Nvidia. The Motley Fool has a disclosure policy.
500 Billion Reasons to Buy Nvidia Stock Like There’s No Tomorrow was originally published by The Motley Fool
