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Nvidia (NVDA) Is Now 3rd Largest in Market Cap: More Upside Left?

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Nvidia Corporation (NVDA - Free Report) outshined Google parent Alphabet Inc. (GOOGL - Free Report) in terms of market capitalization on Feb 14, to become the third-largest company in the United States.

The boom in artificial intelligence (AI) helped the chipmaker’s shares scale northward and close at $739 a share in the last trading session, giving the company a market value of $1.825 trillion, more than Alphabet’s $1.822 trillion market capitalization. Nvidia already surpassed Jeff Bezos’ Amazon.com, Inc. (AMZN - Free Report) a day before, in terms of market value.

Nvidia has now become a beloved stock among market pundits on the back of elevated demand for AI chips, thereby making the company more valuable than several software companies that develop and apply AI-related technology in their products. Alphabet and Amazon require AI server chips for their cloud-related services.

Nonetheless, before the current AI boom, Nvidia was known for providing consumer graphic processors to PC makers, a less money-spinning market. Nvidia was the seventh-largest company two years ago in respect of market value, while it was the twelfth-largest three years back.

Notably, the chip-making behemoth was outside the list of the top 20 largest market capitalization companies four years ago. But at the moment, Nvidia is lagging only behind Microsoft Corporation (MSFT - Free Report) and Apple Inc. (AAPL - Free Report) .

Nvidia’s meteoric rise, particularly in the past year, is due to its dominance in the graphics processing unit (GPU) market. Interest in AI was propelled by the launch of OpenAI’s ChatGPT, which compelled tech bigwigs to restructure their business models. GPU sales skyrocketed on increased demand for AI services and helped Nvidia’s business grow by leaps and bounds.

What’s more, the AI market is projected to witness a CAGR of 15.83% from 2024 to 2030 and reach a market volume of $738.8 billion by 2030, per Statista. Thus, Nvidia is further poised to do well in the near term, and its supremacy in the chip market will be challenging for its adversaries like Intel and AMD.

While improvement in GPU sales is primarily responsible for Nvidia’s stellar performance, recovery in the PC market is also expected to benefit the chipmaker. PC sales took a beating due to a rise in price pressures. However, the Federal Reserve’s aggressive monetary tightening measures curbed inflationary pressure in recent times and helped Nvidia’s PC shipments improve in its latest reported quarter.

Thanks to such an encouraging scenario, investors should place their bets on Nvidia despite the stock being pricey. Nvidia has more upside, with its expected earnings growth rate for the current year coming in at a whopping 268.9%. Its shares have already outperformed the broader S&P 500 in the past year (+235.1% vs +22.0%).

Zacks Investment Research


Image Source: Zacks Investment Research

The Zacks Consensus Estimate for Nvidia’s current-year earnings has moved up 0.2% over the past 60 days. Additionally, Nvidia’s net profit margin is a solid 42.1%, way more than the 20% mark, which indicates a high margin. This means the chipmaker can control its operational expenses and generate enough profit from sales, a tell-tale sign that its shares should further scale upward.

At the same time, Nvidia is a cash-rich company, thereby remaining immune to market vagaries. As of October 2023, Nvidia has an enormous $18.28 billion in cash and cash equivalents.

Nvidia rightfully carries a Zacks Rank #2 (Buy) and a Growth Score of A, a combination that offers the best opportunities in the growth investing space. You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

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