Is Nvidia still the top AI stock?
It’s time to reinvest Nvidia profits into other AI winners
Folks who are saying AI is a bubble or just a fad need to get their facts straight.
Just look at Nvidia’s (NVDA) last quarterly earnings results. It once again reaffirmed why it’s the top AI stock.
Nvidia’s AI chip sales (reported under “data center” revenue) jumped 427% in the last year to $22.6 billion.
AI chips now account for 87% of the company’s total revenue:
When I recommended Nvidia to my Disruption Investor members back in September 2020, I said it was “America’s most important company” and “on the path to becoming a trillion-dollar company.”
We were able to make those claims with confidence because we followed the money flowing into Nvidia’s data center business on the back of the AI trend.
And this is unlikely to stop anytime soon.
AI is saving companies a ton of money.
Buy Now, Pay Later pioneer Klarna rolled out its AI customer service chatbot…
The bot now does the work of 700 (human) agents… resolves queries 80% quicker… and is estimated to drive a $40 million profit for Klarna this year.
People are quick to write off AI as just another stock market craze. They look at the hundreds of billions of dollars being spent on AI and scream, “Bubble!”
But when you see how companies are using this tech to do “more with less,” it’s clear this isn’t a fad. The juice is worth the squeeze.
For example, Alaska Air Group (ALK) saved 500,000,000 gallons of fuel last year thanks to its AI navigation system, which acts like “Google Maps in the air.”
I guarantee this covered the money it spent on AI many times over. And you can bet every other airline saw this and thought, “We need AI, now.”
That’s why I’m getting increasingly bullish on AI. Even small improvements are often worth billions of dollars, which makes AI spending more than “worth it.”
The AI buildout is the largest infrastructure project in history…
This year alone, Microsoft (MSFT), Amazon (AMZN), Google (GOOG), and Facebook (META) will spend more than $170 billion building data centers.
These companies will plough more money into data centers over the next 4–5 years than the US government spent putting a man on the moon or developing the atom bomb.
State-of-the-art data centers are 10X larger than those built just a few years ago. That’s because of the AI “iron law”: With every 10x increase in the amount of data you feed into a neural network, its quality doubles.
The larger the AI model, the “smarter” it is.
Of course, that means you need more data and more ultra-powerful chips to train them. The “compute” needed to train the latest AI models has surged by 1,000,000X in the past decade.
We’ll hit diminishing returns at some point, but we’re not there yet. That means the firehose of AI spending is set to continue. And this is our big opportunity.
Nvidia’s AI chip sales are booming, but here’s the problem… and the opportunity…
Nvidia has been the big winner from the AI spending spree so far.
Disruption Investor members were early to this trend, and we’ve made a lot of money.
Nvidia will continue to thrive. But we’re shifting our attention to other parts of the data center buildout.
Nvidia buys silicon wafers from Taiwan Semiconductor (TSM) — which makes the chips from three tablespoons of sand — for roughly $700 apiece. It then packages the chips and sells them to the likes of Google and Microsoft for $40,000.
But Nvidia is moving too fast for its own good. Its AI chips are 100X faster than they were a decade ago.
All the other parts that make up a data center — networking equipment that allows the chips to “talk” to each other and so on — have only gotten about 4X faster.
This creates a major bottleneck where Nvidia’s chips can only work 30% of the time. The other 70% of the time, these $40,000 chips sit idle… but still use full power.
I expect a lot of spending and innovation to shift toward the lagging parts of the data center equation: cooling equipment, storage, next-gen fiber optic cables, and so on.
Companies making those will be the top AI stocks going forward. And this trend is already starting…
Super Micro Computer (SMCI), for example, which makes high performance server and storage solutions is up 180% in 2024.
These are the kind of stocks investors should focus on next.
Conclusion: It’s time to reinvest Nvidia profits into other data-center stocks.
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