At this point, Nvidia (NASDAQ: NVDA) needs no introduction. Almost everyone probably knows the artificial intelligence (AI) leader by now.
Nvidia stock has exploded over the last year and a half, and even briefly earned the title of the world's most valuable company, surpassing perennial tech titans Apple and Microsoft to top the charts.
The company dominates the market for data center graphics processing units (GPUs), the semiconductor components used to run powerful AI models like ChatGPT, with an estimated market share of 98% in 2023.
However, virtual monopolies in fast-growing markets tend to attract competition, and that's just what's happening to Nvidia. AMD and Intel have both launched their own competing AI GPUs, and even some of the smart money seems to think Nvidia stock could be due for a breather.
Stanley Druckenmiller, who posted an average annual return of 30% in more than two decades running Duquesne Capital Management, cut nearly all of his Nvidia stake in the first quarter, believing that AI stocks may have gotten too hot. Other billionaire fund managers like Steve Cohen of Point72 and Millennium Management's Israel Englander have also dumped shares of Nvidia.
However, one billionaire investor, Tesla CEO Elon Musk, sounds downright bullish on Nvidia. Comments he made about Nvidia in Tesla's recent earnings call should reassure Nvidia investors who might be worried about competition.
Nvidia's demand is still off the charts
Tesla, which is focused on building autonomous vehicles and autonomous robots, is one of the biggest buyers of AI hardware. Musk's other companies, such as X and xAI, are also buying Nvidia's components.
On Tesla's recent earnings call, Musk underscored the need for Nvidia's products, saying in response to a question on Tesla's Dojo supercomputer:
Yes. So Dojo, I should preface this by saying I'm incredibly impressed by Nvidia's execution and the capability of their hardware. And what we are seeing is that the demand for Nvidia hardware is so high that it's often difficult to get the GPUs. And there just seems this -- I guess I'm quite concerned about actually being able to get [unclear] Nvidia GPUs when we want them.
In other words, despite AMD and Intel having launched their competing products (the MI300 and Gaudi 3, respectively) months ago, there's no sign that they are having a meaningful impact on Nvidia's control of the data center GPU market. Demand for Nvidia's products still remains extraordinarily high and shortages continue. Musk also noted that the price for Nvidia's GPUs has soared due to unmet demand for the products. That doesn't mean that competitors like AMD and Intel won't eventually take market share from Tesla, but according to Musk's commentary, so far Nvidia's monopoly is intact.
What it means for Nvidia stock
While Nvidia is likely to face more competition, it's a mistake to think that its products are commodities that can be easily replicated by its rivals.
Musk's remark that he is "incredibly impressed by Nvidia's execution and the capability of their hardware" also shouldn't be overlooked. After all, Musk, who was also a co-founder of OpenAI, is in as good a position as anyone else to assess the AI landscape, and he's not in the habit of doling out compliments to would-be competitors just to be nice.
For Nvidia, Musk's comments are a reminder that the company's blistering growth is likely to go on, especially as it continues to push the envelope with its new Blackwell platform to stay ahead of the competition.
It's understandable that investors would fear a pullback in a stock that has run so far so fast, but Nvidia is safer than the bears think. Not only is demand for its product still outpacing supply nearly two years after ChatGPT launched, but the stock itself looks reasonably priced. It's trading at a forward price-to-earnings (P/E) of 40, which is cheaper than Musk's Tesla and AMD, and only modestly more expensive than Intel, which is expected to report negative revenue this year.
Considering Musk's comments and its entrenched advantages in GPUs, it's still not too late to buy Nvidia stock.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Thinking of Buying Nvidia Stock? You Need to Hear What Elon Musk Just Said was originally published by The Motley Fool