Meet The 1 Thing That Could Keep Nvidia Ahead Of Rivals

Nvidia (NASDAQ: NVDA) is playing a crucial role in the development of artificial intelligence (AI) today thanks to its top-performing graphics processing units (GPUs). These chips power some of the most important AI tasks like the training and inferencing of large language models (LLMs) so that these LLMs then can go on to solve complex problems.

And Nvidia has gone beyond this by developing entire AI systems, as well as services, so that the company can be a customer's one-stop shop for AI. Even better, the potential customer can easily access these offerings since they're available through all public-cloud providers. All of this has helped Nvidia's sales soar over the past few years, climbing in the triple digits to record levels quarter after quarter. In the most recent report, sales reached a record $26 billion. More than 85% of that was from Nvidia's data-center business. (Data center includes the company's AI products and services.)

All of this sounds great, but investors have worried about one thing: potential rivals. Competition is heating up as companies from Intel to Advanced Micro Devices launch new AI products and even suggest these products might outperform Nvidia's GPUs. Should you worry? Not necessarily. Instead, meet the one thing that could keep Nvidia ahead of the competition.

Nvidia's top-performing GPU

First, a quick look at where Nvidia stands right now. The company's top-performing GPU is the H100, a product in such high demand that delivery-wait times last year stretched out to as many as 11 months. Today, that delivery window is a lot shorter, but demand for this and other Nvidia products continues to soar.

In the most recent earnings report, Chief Executive Officer Jensen Huang said demand has surpassed supply, leaving Nvidia "racing" at every moment to keep up. Meanwhile, Nvidia aims to begin shipping the H200, a new GPU that almost doubles the inference power of the H100, during this current quarter. And Nvidia plans to launch its new Blackwell architecture and most powerful chip ever later this year. The company says demand for the H200 and for Blackwell surpasses supply, and this trend may continue into next year too.

And this leads me to the one thing that could keep Nvidia ahead of rivals. This is Nvidia's "one-year rhythm" as Huang calls it, referring to the company's pledge to launch better-performing chips on an annual basis.

This means that when a rival releases a chip that beats Nvidia's current one, a new and better Nvidia product likely will be right around the corner. For example, Intel recently said its latest release, the Gaudi 3 accelerator, tops the H100 in inference and power efficiency. But Nvidia already is on track to deliver higher-performing chips in the coming weeks and months.

A $1 trillion market

If Nvidia can keep up this rapid pace of innovation, and so far it's given us reason to be confident, the company should be able to maintain its market position and stay ahead of rivals over the long term. This doesn't mean companies like Intel or AMD won't be successful over time too. Considering the forecast for an AI market worth more than $1 trillion by 2030 and the demand for chips today, there's room for many players to generate billion-dollar revenue in this space.

As for Nvidia, though, this company should continue to attract customers seeking the fastest chips around. And considering the demand Nvidia has seen so far, there are plenty of them.

So, yes, rivals are bringing interesting products to market, and they could carve out market share but probably not enough to unseat Nvidia. And that means investors shouldn't worry about the possibility of Nvidia's earnings declining as other chip designers launch new products. I don't see this as a big risk for Nvidia today or in the foreseeable future as long as this top player sticks to its innovation promises.

That means that Nvidia, trading at 42 times times forward-earnings estimates, looks like a reasonable buy today. The AI boom has just started, and Nvidia has what it takes to maintain its lead throughout the chapters of this high-growth story.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.