The onset of artificial intelligence (AI) revolution has undeniably reshaped the tech landscape, an evolution that many, including Microsoft, didn’t fully anticipate when they invested in OpenAI back in 2019. Bill Gates aptly observed that we often overestimate the changes we’ll see in the next two years while underestimating the shifts of the ensuing decadeFast forward to 2023, and we find ourselves right in the midst of what many are calling the "iPhone moment" of AI.

NVIDIA has emerged as a key player amidst this transformative tide, likened to a modern-day gold rush where it acts as a 'seller of shovels.' Often dubbed the ‘God of the Global Stock Market,’ the AI-first stock has seen its share price face scrutiny, only to rebound spectacularly after each earnings report, confounding naysayers and showing that its valuation remains attractive despite soaring prices

Just recently, NVIDIA's share value dipped to $898 following tremors from interest rate decrease expectations, but it’s now on the verge of revisiting its peak at $910, with expectations mounting ahead of its Q1 2024 earnings release on May 22nd.

Wall Street analysts, it seems, have a shared optimism about NVIDIA’s growth potentialRecent bullish forecasts have seen price projections adjusted significantly upwards; a $1000 target is no longer seen as fancifulGoldman Sachs recently positioned their 12-month target price at $1100, raising it from $875, citing robust demand for AI servers and improvements in supply chainsThe expansive potential for data center revenues remains NVIDIA's anchor in this volatile market.

However, opportunities within the AI arena extend beyond NVIDIA aloneThe AI revolution is still in its nascent stages, prompting numerous investment managers to adopt a diversified approach, seeking small stakes in various growth stocks instead of concentrating solely on a single entity

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NVIDIA’s AI GPUs have been projected to capture approximately 80% market share, but the customization race is also rewarding companies like Tesla, Amazon, Microsoft, Google, and others with tailored AI chips.

Moreover, the Asian market offers a treasure trove of opportunitiesY.TBoon, head of Asia-Pacific equity thematic research at a well-reputed firm, astutely remarked during a conversation in Shanghai that investments in AI are surging, with AI chip markets expected to grow at a staggering annual rate of 50% over the next five years.

In April, following surprising inflation and retail data, expectations of imminent interest rate cuts evaporated, leading to a historic drop in tech giants' valuations—over $950 billion collectively wiped offNVIDIA was among the hardest hit, witnessing a staggering 13.6% plunge in stock price during the week of April 15-19, translating to a market cap loss nearing $300 billion.

Nevertheless, the giant swiftly rebounded, climbing back to near $900, marking nearly a 90% increase in value year-to-date

Back in March, several fund managers were already alluding to the fact that a $1000 price tag didn’t seem all that outlandish any longerThe pivotal earnings report from that month served as a powerful counter to skeptics, revealing a jaw-dropping 265% yearly sales increase to reach $22.1 billion in the last quarter, with data center revenues skyrocketing by 409% to hit $18.4 billion, showcasing a staggering 769% growth in net profit that reached $12.29 billion.

Interestingly enough, Goldman Sachs expects NVIDIA to sustain over two-fold growth in the 2025 fiscal year, despite having tripled its data center revenues in 2024. Analysts foresee continual spending by major cloud service providers and even sovereign nations on generative AI infrastructure, amid numerous new product launches like H200, offering double the performance of H100, and Spectrum-X, an AI networking solution based on Ethernet

Moreover, any bottlenecks in supply chains are gradually easing, feeding into the already robust demand.

Yet, caution resonates within some investment circles regarding NVIDIA's long-term outlookA QDII investment manager disclosed that while NVIDIA likely will remain a dominant player with a projected 70-80% market share, the competitive landscape surrounding general-purpose GPUs could become increasingly unfavorable as competitors like AMD and Intel enter the frayThey noted that while NVIDIA could still see positive margins, the pressure of maintaining such high prices and profit margins might not be sustainable.

Furthermore, the conversational manager made a keen observation about the cloud service platforms (CSPs), like Amazon's AWS and Microsoft's Azure, which could reasonably invest resources into developing their own proprietary AI acceleration chips—an inevitable shift that may eat into NVIDIA’s market share.

Among the various thoughts shared by analysts, NVIDIA’s fair value trading range remains pegged at a price-to-earnings ratio between 30-40, equating to a potential market cap of up to $2 trillion

However, striking the right purchase price in what many see as a burgeoning bubble is a challenging task, with some excessively optimistic forecasts even suggesting growth to an astounding $4.5 trillion valuation by the end of 2025.

Delving into NVIDIA's business model reveals several key segments: gaming platforms, data centers, artificial intelligence, automotive, and professional visualization—of which data centers definitely lead the chargeThe consensus amongst multiple Wall Street institutions hails the ongoing strong demand for AI servers as a catalyst for upward revision in profit forecasts.

Particularly noteworthy, NVIDIA currently trades at a PE ratio of 35, reflecting only 36% of the premiums seen in Goldman’s coverage universe, which stood at a median premium of 160% over the past three yearsAnalysts argue this ostensibly lofty valuation isn’t overly intimidating given the circumstances.

The aforementioned optimism aligns with major clients, mainly comprising the "Tech Giants," projecting increased capital expenditures associated with generative AI

Alphabet, for example, reported strong progress in its generative AI services with capital expenditures expected to exceed $12 billion in the coming quartersMicrosoft revealed that AI contributed a remarkable seven points to Azure’s growth—further validating demand visibilityMeta, meanwhile, raised its 2024 capital expenditure guidance and indicated forecasts for increased spending in 2025 due to investments geared towards AI development.

Reacting to the improved outlook across the AI ecosystem, institutional forecasts for NVIDIA's data center business suggest quarterly growth intervals ranging from 5% to 17% over the upcoming three quarters—further signifies robust demandAmidst all this, TSMC’s management confirmed during a recent earnings call that while planning to more than double CoWoS production capacity, the availability remains constricted, effectively monopolized by NVIDIA.

Delving deeper, various tech giants are still drafting their GPU requirements

Previous estimates suggest that market demand for NVIDIA H100 GPUs could reach about 432,000 unitsAt approximately $35,000 per unit, that could translate into a staggering $15 billion market, exclusive of substantial demand from firms like ByteDance, Baidu, and Tencent wanting H800 series GPUs.

In juxtaposition, NVIDIA’s capacity is seemingly limitedIt reported data center revenues of $4.28 billion between February and April of 2023, substantively marking an effective timeline for meeting substantial demand through 2024.

The H100 supply bottleneck arises primarily from TSMC being the sole producerH100s are manufactured at TSMC’s exclusive N5 or N5P nodes, with demand sharing capacity among clients like Apple and Qualcomm, complicating production scheduling that requires precision twelve months in advance.

On another front, competition continues to build, yet NVIDIA's fortified moat appears unassailable

The comparative reason companies favor the H100 over AMD's alternatives largely stems from the efficiency gains—its 16-bit inference speed being up to 3-5 times fasterThe training speed reportedly increases by around 2.3 times with significant improvements overall.

The pivotal advantage NVIDIA holds stems from CUDA, a Compute Unified Device ArchitectureThis sophisticated environment empowers developers to leverage the parallel computing capabilities of NVIDIA GPUs efficiently, thus driving enhanced computing outcomes.

Notably, discussions about AMD's CUDA-like systems often surface, yet AMD's focus on its x86 processor market may obscure its impetus to invest heavily elsewhereComparatively, the MI300—a potential competitor—stands at roughly $13,000, presenting a seemingly better investment versus NVIDIA H100's reduced resources, marking approximately a 43% cost advantage

However, concerns about software longevity ultimately mitigate those savings.

As we approach the future of AI, the formation of new innovations is ceaselessThere is a wealth of opportunity that transcends NVIDIA alone, with the global AI landscape illustrating a remarkable breadth of growth across other sectorsFor instance, while NVIDIA serves as a central figure in AI chip production, an increasing number of cloud service providers like Amazon and Google are developing their proprietary large language models, necessitating specialized solutionsInnovations in AI are bound to expand into everyday products, like smartphones pushed by giants Samsung, Huawei, and Xiaomi.

As we venture into the AI realm further, the introduction of devices like AI Pin—a concept crafted to revolutionize user interaction with AI—has the potential to transform our expectations of technology