Think Nvidia stock is expensive? This chart might change your mind

Big tech companies are spending heavily on AI infrastructure now. The market size is expected to grow tenfold by 2030.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nvidia (NASDAQ: NVDA) was one of the best-performing stocks of 2024. It even dwarfed the returns of the Nasdaq Composite index in a year the index itself returned an amazing 28.6%. Its stock price soared as the market became enthused by consistent triple-digit revenue gains that led to triple-digit net income gains. That led to a 171% increase in Nvidia's stock price in 2024. It also pushed the stock's price-to-sales ratio to 30.

Those who might think that means the stock is now too expensive should look at the opportunity still ahead. Enough opportunity can trump a high P/S. One chart might help explain.

The market opportunity tells the story

Big tech companies continue to ramp up spending to build artificial intelligence (AI) infrastructure. Microsoft and Amazon each recently announced commitments to invest $80 billion and $11 billion, respectively, in the coming months. The investments are for data centres to train AI models, and distribute AI and cloud-based applications. That's because the market for generative AI is expected to grow tenfold over the remainder of the decade.

bar chart showing global market size for generative AI through 2030.

Image source: Statista.

Generative AI has a wide array of applications. It is already being used to generate content and enhance creativity. Businesses use it to enhance customer experiences by adapting content and services to individual preferences. It can enhance existing data, improve cost efficiency, foster innovation, and aid in simulations and planning. Investors themselves are using generative AI for multiple reasons.

Nvidia will be a major beneficiary of the investments to build out the needed infrastructure. Its Blackwell architecture is already in high demand, and the company will have its new Rubin platform available next year to succeed Blackwell.

CEO Jensen Huang also introduced a new desktop supercomputer at the recent CES conference in Las Vegas. The $3,000 unit can be used by researchers, data scientists, and even students. It shows that Nvidia is broadening the market for its advanced chips beyond just hyperscaler data centres.

With a quickly growing market for generative AI and innovative products, Nvidia has enough business opportunity ahead to justify the elevated valuation.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Howard Smith has positions in Amazon, Microsoft, and Nvidia. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Microsoft, and Nvidia. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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