It maybe hard to imagine that Nvidia may be the most under-valued stock in the world – despite increasing in price more than 1.200% in the last five years.
Look at the chart below which shows its profit margin. The more GPUs (Graphics Processing Units, used in AI training models) it sells, the more profit it makes – not just more revenue, but more profit.
Nvidia’s net profit margin surged to a record high of 71% in Q1, up from 12% a decade ago.
As chartist Charlie Biello notes, no company in history has had as much pricing power as Nvidia does today, fueled by its continued dominance in the AI chip market.
Nvidia holds more than 80% of the AI chip market, but its strongest “moat” is in the CUDA software market. CUDA (Compute Unified Device Architecture) is Nvidia’s own proprietary computing platform and programming model, allowing developers to use Nvidia GPUs for general purpose processing, dramatically speeding up compute-intensive tasks like AI training, scientific simulations, and video rendering. This makes it extremely expensive for users to switch to alternative tech providers. That’s a giant moat that Nvidia has built around its business, making it the world’s most valuable business with a market cap of more than $5trillion.
Nvidia doesn’t just sell chips: it offers a complete platform (GPUs + NVLink networking +software + libraries + tools). This creates high switching costs and better real-world performance.
Looking at the profit margin chart above, it’s hard to imagine that this share is under-valued, as many were claiming two years ago.
