3 reasons to buy Nvidia shares before June 26

Artificial intelligence (AI) is a truly revolutionary technology that has captured the imagination of investors like no other. It’s a double-edged sword, even if the technology is truly here to stay. If we’ve learned anything since 2000, it’s that too much hype around new technologies, without the economics to support sky-high valuations, is dangerous territory.

I don’t want to make too close a comparison here – there are plenty of reasons to believe this isn’t a second round of the dotcom bubble – but it’s always wise to maintain a healthy skepticism during a boom. All eyes – skeptics and believers alike – are on this Nvidia‘S (NASDAQ: NVDA) upcoming annual meeting of stockholders.

On June 26, 2024, the leader of the AI ​​revolution will host a meeting to discuss strategy and vote on action items such as board approvals. Typically, annual general meetings aren’t as defining as earnings reports, but it’s still an important event that can shed light on the future of Nvidia and the market as a whole.

Is the meeting fast approaching? Is now a good time to jump on the Nvidia train? Here are three reasons why the stock continues to look strong.

1. Nvidia has a lot of money to play with

Now that the company has become famous and has proven how profitable the business is, the competition wants a share of these profits. The threat of one AMD Or Intel Overtaking and eating into the approximately 80% of market share that Nvidia enjoys is real and should be taken seriously. However, Nvidia has enormous resources to defend itself through constant innovation.

In the technology sector, the best product goes a long way. AMD and Intel need to produce a product comparable to Nvidia if they want to take market share away from them. It costs a lot of money. AMD spent $1.5 billion on research and development (R&D) last quarter, while Nvidia spent $2.7 billion. Remember that Nvidia is already in pole position; it has the best technology on the market and it still outsells AMD almost two to one.

Intel, on the other hand, spent more than both at $4.4 billion last quarter. The problem is that these expenses put Intel in the red. How long can he keep it like that?

Take a look at this chart showing the free cash flow (FCF) of these companies. FCF is a company’s income after subtracting operating costs and capital expenditures (money the company spends on growth). It indicates how much space the company has if it wants to, for example, increase its research and development spending.

2. The market as a whole is growing rapidly

So if we assume that Nvidia has the means to defend itself against its main competitors, we can assume that Nvidia can maintain or increase its market share. There are certainly more factors, but this is not an unjustified assumption.

The story continues

Statista.com projects the compound annual growth rate (CAGR) of the overall AI market to 2030 at around 28.5%. This is a very fast rate of growth, although slower than the meteoric rate at which the company has been growing recently. However, maintaining this rate of growth would be incredible.

These are estimates for the entire market – not just semiconductors, which are Nvidia’s bread and butter – so it’s a very rough benchmark. The semiconductor segment may have a lower CAGR. But this brings me to my next point.

3. Nvidia is not resting on its laurels: it is expanding its revenue sources

There’s no doubt that Nvidia’s massive recent success has been driven by sales of its powerful AI chips, but the company sees a future beyond that. Nvidia is trying to build an entire AI ecosystem. He cooperates with companies such as Dell offering complete, local AI computing solutions. It builds end-to-end technologies and platforms for autonomous vehicles, humanoid robotics and drug research. There’s more, but I’ll stop there. The point is that Nvidia wants to position itself at the center of everything AI-related, as the star around which other companies revolve, not just one link in the chain.

Should you invest $1,000 in Nvidia now?

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Johnny Rice has no position in any of the companies mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long calls to Intel in January 2025 for $45 and short calls to Intel in August 2024 for $35. The Motley Fool has a disclosure policy.

“3 Reasons to Buy Nvidia Stock Before June 26” was originally published by The Motley Fool