Nvidia stock was one of the best performers of the first half, climbing almost 150%.
Nvidia (NVDA -1.62%) The stock has been on fire in recent years for a very good reason: the company’s dominance of the artificial intelligence (AI) chip market. Nvidia holds an 80% stake, and due to its commitment to innovation, this leadership may continue. All of this has translated into triple-digit earnings growth and investor optimism about the company’s future.
And that helped Nvidia continue its path higher this year, rising nearly 150% in the first half. The stock has taken a hiatus in recent weeks following the stock split, but I don’t think this underperformance will last much longer. In fact, my prediction is that Nvidia stock will rise in the second half thanks to a game-changing move the company is about to make.
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Nvidia’s biggest business
First, a quick overview of Nvidia’s path so far. The tech giant sells the world’s best-performing graphics processing units (GPUs), chips that run the most essential AI tasks, and an entire ecosystem of products and services for customers developing AI projects. Nvidia’s GPUs were originally best known for powering video games — and the company still generates revenue there — but today AI has become the company’s biggest business.
In the latest quarter, data center revenue rose to a record of more than $22 billion — that’s on a total of $26 billion in revenue. Nvidia is also very profitable, generating more than $14 billion in net income and increasing gross margin to about 78% from 64% in the year-ago period.
All this has helped the stock to advance not only this year, but in recent years. Over the past five years, Nvidia is up 2,900%, and shares soared above $1,000 in May. The company recently completed a 10-for-1 stock split, lowering its stock to less than $130. While this doesn’t change anything fundamental about the company, such as its market value or valuation, the move makes it easier for a wider range of investors to get into the stock.
However, after Nvidia’s stunning performance, some investors worry that the stock may lose its momentum. But here’s a game-changing move that could take this innovative player higher in the second half. I’m talking about Nvidia’s upcoming launch of its Blackwell architecture and its best chip yet. Demand for Blackwell has already outstripped supply, and the company expects that to continue next year. The system is in production now, with Nvidia aiming to make it available globally later this year.
Blackwell’s release strategy
The company foresees “quick and broad adaptation” across its range of customers and their projects thanks to its rollout strategy. More than 100 original equipment manufacturers and original design manufacturing systems will include Blackwell at the launch — and every major computer manufacturer will be a part of it.
Why is Blackwell such a big deal? Because the architecture delivers 4x faster training and 30x faster termination than Nvidia’s current flagship performer, the H100. And when customers save time, they not only make their AI projects operational faster, they also save on cost. In fact, Nvidia says Blackwell results in a 25x lower total cost of ownership for a customer compared to its current Hopper architecture. So Blackwell should be a big step forward for Nvidia and its customers.
My earnings forecast
Now let’s talk a little more about my prediction. Since Nvidia plans to release Blackwell later this year, I’d expect to see the impact on earnings growth next year — but I still think this launch could act as a positive catalyst for the stock’s performance in the months ahead. , especially if Nvidia continues to report high demand in the coming quarters. As investors anticipate earnings growth ahead, they may choose to get into this stock now — and potentially profit as Blackwell’s earnings start rolling in.
I wouldn’t expect Nvidia stock to repeat its triple-digit performance in the first half, but given the company’s earnings growth over the past few quarters and the idea that Blackwell could serve as an important new growth driver, I wouldn’t be surprised to see Nvidia’s stock rise in the double digits in the second half. After all, analysts are predicting average annual earnings per share growth of more than 46% over the next five years.
Finally, here’s the best news of all: Even if I’m wrong and Nvidia’s stock stagnates in the second half, the company, thanks to its solid market position and innovation, has what it takes to benefit from growth of AI over time — and that could drive the stock significantly higher in the years ahead.
Adria Cimino has no position in any of the mentioned shares. The Motley Fool has positions and recommends Nvidia. The Motley Fool has a disclosure policy.