Intel and AMD's latest earnings reports make one thing clear about the state of Nvidia's competition in the AI chip market.
The artificial intelligence (AI) market will continue to grow in 2024 as companies spend huge amounts on building infrastructure to keep up in the race to deploy and integrate AI applications.
According to one estimate, global spending on AI will exceed $200 billion this year, and chipmakers such as Nvidia (NVDA 1.27%) has allowed investors to gain this massive. Looking ahead, the market for semiconductors powering AI applications is expected to reach $341 billion in annual revenue by 2033. The latest developments in the AI chip market indicate that Nvidia remains the best bet for investors to take advantage of this tremendous opportunity.
AMD and Intel's earnings reports make it clear that they are far behind Nvidia.
Nvidia enjoyed an early start in the AI chip market. Its A100 processor was used to train ChatGPT, the chatbot that started the AI revolution in late 2022.
Competitors like Advanced Micro Devices And Intel They were left to play catch-up because they didn't have a powerful enough chip to compete with Nvidia's H100. Both companies were at least a year behind Nvidia on the AI chip development curve. This is reflected in the fact that AMD's rival to Nvidia's H100, the MI300X accelerator, was launched in December 2023. Meanwhile, Intel's H100 rival Gaudi 3 was announced last month and will start shipping later this year.
Nvidia's H100 goes into full production in September 2022. This lead has allowed Nvidia to gain a firm grip on the AI chip market and also explains why its competitors' latest offerings aren't gaining much attention. For example, AMD sees its AI GPU sales reaching at least $4 billion in 2024. Intel is further behind and expects the Gaudi 3 launch to help it achieve $500 million in AI chip sales in the second half of 2024.
Nvidia is ahead of both Intel and AMD as it sold $47.5 billion worth of data center chips in fiscal 2024, up 217 percent from the previous year. It also indicates that AMD and Intel's new chips, which were supposed to help them chip away at Nvidia's 90%-plus market share, aren't doing much damage to the latter's dominant position.
One reason is that Nvidia has withheld a large portion of its supply of AI chips from its Foundry partner. Taiwan Semiconductor Manufacturing (known as TSMC). More specifically, Nvidia reportedly commands half of TSMC's advanced chip packaging capacity deployed to manufacture AI chips.
Moreover, Nvidia is all set to widen the technology gap with its rivals later this year with the launch of new AI GPUs based on the Blackwell architecture. Market research company TrendForce expects Nvidia to secure chip supplies from TSMC for its next-generation chips.
TSMC's monthly capacity to make advanced chips is expected to increase by 150% this year to 40,000 wafers per month. By next year, TSMC expects to double its capacity again. Important to note here is that Nvidia is expected to use more than half of TSMC's high-end chip packaging capacity. So, Nvidia's tight control over TSMC's advanced chip supply will help it fend off the likes of Intel and AMD.
Nvidia's AI lead is poised to translate into impressive growth.
Investment banks UBS Nvidia recently raised its price target to $1,150 from $1,100, citing the upcoming arrival of its next-generation AI GPUs. UBS expects the company to deliver $175 billion in revenue in 2025 (which would correspond to its fiscal year 2026), with earnings per share of $41. Those estimates point to a big jump from Nvidia's fiscal 2024 revenue of $60.9 billion and earnings of $12.96 per share.
Assuming Nvidia reaches $41 per share in earnings this fiscal year and trades at 30 times earnings, Nasdaq-100 Multiple the index's earnings (using the index as a proxy for tech stocks), its stock price could reach $1,230 in a few years. That would be a 36 percent jump from current levels. However, Nvidia currently trades at 74 times earnings, and is likely to trade at a premium valuation in the future thanks to its AI chip dominance.
So, it wouldn't be surprising to see this AI stock delivering stronger gains than analysts expected, which is why it might be a good idea to buy Nvidia after its peers' latest earnings reports.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. 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.