“AI infrastructure market opportunity could grow 10x from today through 2027”

October 10

We recently published a list of Top 10 AI Stocks Investors are Talking About in October. Since NVIDIA Corp (NASDAQ:NVDA) ranks 5th on the list, it deserves a deeper look.

Venu Krishna, Barclays head of U.S. equity strategy, said while talking to CNBC in a latest program that he is not revising his S&P 500 year-end projection of 5,600 because he believes stock valuations are “full.”

“If you see what’s happening, numbers (earnings) have been cut sharply going into the end. What is still anchoring the market is big tech, even though their earnings themselves are kind of decelerating. Then seasonality comes into play. October is the weakest month, and you don’t want to get ahead of that.”

Asked whether he does not believe the market really broadened out, Krishna said while there were some signs of market broadening, the “anchor” of the rally remains big tech, which according to him, are just six stocks.

Moving beyond the earnings and valuations debate, another factor still impacting investor sentiment is the Federal Reserve’s next moves.

Talking about the latest Fed minutes released October 9, Wolfe Research’s Stephanie Roth said on CNBC that a “substantial” majority of Fed officials wanted a 50-basis-point rate cut. However, she said in the next meeting, a 50bps rate cut is “off the table.”

For this article we picked 10 AI stocks trending on latest news. With each stock we mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

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Nvidia (NASDAQ:NVDA): Leading AI Chip Demand Despite Blackwell Delay

NVIDIA Corp (NASDAQ:NVDA)

Number of Hedge Fund Investors: 179

Wedbush analyst Dan Ives has yet again reiterated that NVIDIA Corp (NASDAQ:NVDA) will be among the top beneficiaries of the huge AI spending.

“The supply chain is seeing unparalleled demand for AI chips led by the Godfather of AI Jensen and NVIDIA Corp (NASDAQ:NVDA) and ultimately leading to this tidal wave of enterprise spending as AI use cases explode across the enterprise,” analyst Dan Ives wrote in a note to clients. “We believe the overall AI infrastructure market opportunity could grow 10x from today through 2027 as this next generation AI foundation gets built, with our estimates [showing] a $1 trillion of AI cap-ex spending is on the horizon [over] the next 3 years.”

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Nvidia’s declines after the Q2 results were more or less expected amid Blackwell delay reports confirmed by management. However, the delays were mainly due to a change in Blackwell GPU mask. That does not affect the main functional logic or design of the chip, according to analysts. While Blackwell has been delayed for a few months, it does not change the core growth thesis for Nvidia.

Nvidia is set to see huge growth on the back of the data center boom amid the AI wave.

At Nvidia’s GPU Technology Conference in March 2024, CEO Jensen Huang estimated annual spending on data center infrastructure at about $250 billion. Over the next decade, this could total between $1 trillion and $2 trillion, depending on how long this level of investment continues. During the same Q&A session, Bank of America’s Vivek Arya echoed this estimate, suggesting the total addressable market would fall in the $1-2 trillion range, particularly as countries invest in their own AI infrastructure. By the end of the decade, spending could be at the high end of that range.

Of course, Nvidia won’t dominate the entire $2 trillion opportunity, as it faces competition from companies like AMD and internally developed AI accelerators from Google, Amazon, and even Apple. Some analysts believe Nvidia’s data center market share between 2025 to 2029 will be over $950 billion—less than half of the total market—but still enough to make it the leader in the sector.

Generation Investment Management Global Equity Strategy stated the following regarding NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2024 investor letter:

“Recent net performance is behind market averages. However since the fund’s inception, we have spent only about 8% of the time underperforming on a rolling five-year basis.1 We do not enjoy these spells. A number of different factors has contributed to the current period of underperformance. The fact that we do not own NVIDIA Corporation (NASDAQ:NVDA) is one. That single company accounted for roughly 25% of returns in the benchmark so far this year, meaning almost everyone who does not own Nvidia has lost out. Year-to-date, not owning Nvidia explains about a third of our relative underperformance.

Nvidia is, clearly, an earnings juggernaut. In the past year its revenue has more than tripled, as cloud companies load up on hardware to power AI models. So while its earnings multiple has increased, we are not seeing a repeat of the dotcom mania of the late 1990s. This company’s valuation is backed by cold, hard cash…” (Click here to read the full text)

Overall, NVIDIA Corp (NASDAQ:NVDA) ranks 5th on Insider Monkey’s list titled Top 10 AI Stocks Investors are Talking About in October. While we acknowledge the potential of NVIDIA Corp (NASDAQ:NVDA), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.

Disclosure: None. This article is originally published at Insider Monkey.

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