For anyone whose investments include technology, which should be everyone, Nvidia (NASDAQ:NVDA) is a core holding.
That’s because artificial intelligence, in both the cloud and at the edge, is a key to growth in the next decade. Nvidia has the chips and software that deliver it.
The recent bull run has made Nvidia pricey in the short term. It opened Dec. 6 at 11 times its expected annual sales of $11.7 billion and 53 times earnings; it had a market cap of over $128 billion. It’s down about 5% over the last week, and another dip may be coming.
I wouldn’t buy it here, but I already have some. If you don’t, you need some, and you can still buy it here, if you have a 5-year time horizon.
Why Nvidia Matters
Nvidia matters because AI matters.
Inferencing, drawing conclusions based on data and acting on those conclusions turns dumb machines smart. Cars, stores, medical devices and networks are constantly taking information in, but until now, they haven’t been using it. When they use it, they deliver tangible benefits to users. This is all about software, not just hardware. In this decade, hardware has become software, and Nvidia has led that revolution.
Until now, Nvidia chips have primarily gone inside clouds. Wins at the network edge have been limited to gaming, and gaming still matters. Gaming is a test bed for AI applications, with gamer decisions racing to increasingly high levels of abstraction, and gaming chips’ processing what become the lower levels.
But big wins are coming in areas beyond gaming. The company is going to get its share of those wins.
Here, software matters as much as hardware. Nvidia has learned this in gaming, and is starting to apply this in markets like healthcare, where its Clara Federated Learning tools can not only help diagnose conditions in an emergency, but protect the privacy of patient data at the same time.
All the threats to Nvidia are short-term, niche events. No one has the broad front of AI tools and hardware that Nvidia offers.
Analysts will tell you Intel (NASDAQ:INTC) is a threat to the company’s dominance because it has the cash to buy start-ups like Movidius, Nervana and (now) Habana Labs. None of that represents a broad attack against its dominance in AI.
The same thing is true for new silicon from Amazon (NASDAQ:AMZN). Its Inferentia chip is designed to hold down the cost of AI in the cloud, while Nvidia software has already gone on to deliver application support at the edge.
Not all markets within the AI landscape move at the same rate. Right now, the automotive market is slowing, and Nvidia sales to the market are slowing with it. But this is also a short-term hiccup, as the transport industry looks to find which self-driving niches will pay.
All these events play on Nvidia shares in the short term. They don’t affect the long-term outlook.
The Bottom Line
Nvidia was once a graphics chip company. Then it was a cloud chip company.
Today, Nvidia is an artificial intelligence company.
AI requires chip support both in the cloud and at the edge. It also requires new platforms in which new tools can be designed and implemented.
While analysts and investors have been looking at short-term gains and losses in particular subsets of the market, Nvidia has been marching ahead along a broad front of AI, supporting it in the cloud, at the edge, and within the workstations where tomorrow’s applications will be created.
That’s what makes Nvidia a core holding today. You don’t have to buy it when the market is at a high, but it needs to be in your portfolio in the 2020s.
Dana Blankenhorn is a financial and technology journalist. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in Nvidia and Amazon.