Hyperscalers are the big tech giants spending feverishly on artificial intelligence (AI). Your continued investments in AI are what enable NVIDIA (NASDAQ: NVDA) and other AI stocks to generate considerable growth and, in the process, help drive their shares higher. From chips to infrastructure to memory, there is a major ripple effect that stems from how much these tech giants spend on AI.
While investors may worry about a potential slowdown in spending, Nvidia CEO Jensen Huang isn’t worried about that at all. In fact, Huang believes spending will remain high as the AI ​​arms race may continue to ramp up. Here’s why hyperscalers’ AI investments can actually increase in the future.
Did Nvidia miss out in 2009? This rare signal flashes again. In 2009, a “double down” signal appeared for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company that is 1/100th the size of Nvidia. Continue “
Businesses need to spend to keep up
While tech companies are spending huge amounts of money on AI-related capital expenditures, Huang believes there is still much more room for growth. He says companies will need to continue investing in computing capabilities, not only to generate revenue, but also because “computing generates profits.” And since AI requires significant computing power, Huang still expects to see more spending from hyperscalers in the coming years.
Some analysts believe AI spending will surpass $1 trillion within a couple of years. However, Nvidia management projects that by the end of the decade, it could exceed $4 trillion in annual spending, especially with the growth of agent AI.
The pressure is on hyperscalers to prove that their AI efforts will pay off. Slowing down would allow rivals to leap forward and gain an advantage, which simply may not be a sustainable option.
Could this undervalue Nvidia stock?
If analysts underestimate the growth opportunities of AI, they are undervaluing Nvidia stock in the process. Not only could the price targets be low, but the stock’s price-earnings-growth (PEG) multiple, which is based on the company’s expected growth over the next five years, should be even lower than it is now (0.66), suggesting that Nvidia may be an even better business than it appears to be.
If you believe Nvidia’s growth projections for AI-related spending, then In fact, growth stocks can be a fantastic buy. right now. But even at its current valuation and projections, it’s not a terribly expensive stock to own. As long as you’re willing to stay the course and hang in there for the long term, the stock can be a good buy regardless of which projection ends up being true. However, since its valuation already includes a lot of growth, its returns may not be as massive as they have been in recent years.