Everybody knows that Nvidia (NASDAQ: NVDA) dominates the artificial intelligence (AI) processor market. AI software experts need extremely powerful number-crunching chips, and Nvidia's AI accelerators are the cream of the crop.
But Nvidia's share prices have skyrocketed 1,060% in two years and the stock trades at a nosebleed-inducing 37 times trailing sales. Is this stock overpriced, or is it still the best AI stock to buy today?
Let's have a look.
Nvidia has been selling AI accelerators for years. OpenAI and Microsoft (NASDAQ: MSFT) bought the chips that made the first public version of ChatGPT possible in 2020. That system was worth a few hundred million dollars. Rumor has it that the next generation of OpenAI's ChatGPT training hardware will require millions of Nvidia chips and cost as much as $100 billion.
And that's just one system from one AI project. The ChatGPT release opened the floodgates for an industrywide fascination with generative AI, and pretty much every tech giant worth the nickname is building large AI-training systems. Nvidia's revenue chart shows where the generative AI boom started to translate into soaring chip sales, about two quarters later:
As you can see, Nvidia's business is booming and the company converts nearly half of the incoming revenues into free cash flows. Nvidia obviously deserves a premium-priced stock, given its shareholder-friendly financial results and solid prospects of continued top-line growth.
On the other hand, Nvidia isn't the only AI accelerator designer out there. The company wins the raw performance races every time but others offer competitive chips with other desirable features. For example: