This shocking move by Elon Musk and Larry Ellison signals huge growth for Nvidia (and should eliminate its biggest shareholder concern)

Nvidia (NVDA -1.02%) has grown by leaps and bounds in recent years. Thanks to the company’s dominance of the artificial intelligence (AI) chip market, its quarterly revenue and profits grew at triple-digit percentage rates year-over-year. The company also boasts a gross margin of over 70%. The market responded to these amazing results by bidding the stock up more than 2,400% in five years.

In fact, the stock climbed so high that the company engaged in a stock split this spring to drop its price from more than $1,000 to about $120 — a move intended to make it easier for retail investors to buy .

All of this sounds great, but current shareholders and potential investors remain concerned about one thing — future growth. Competition in the AI ​​chip market is increasing, and some are concerned that Nvidia’s growth rate will begin to slow as cheaper options become more widely available. But a recent shocking move adze CEO Elon Musk and Oracle Co-founder Larry Ellison actually signals that Nvidia still has enormous growth ahead and should ease investors’ fears.

Image source: Getty Images.

GPU speed and efficiency

First, a quick recap of Nvidia’s journey so far. The company makes graphics processing units (GPUs), a type of chip that processes multiple tasks simultaneously. Initially, GPUs were mostly intended for use in the video game market, but it became clear that their speed and efficiency made them valuable for a number of other computing uses. As companies in recent years have turned their attention to AI, which requires exactly the kind of high-speed parallel processing power that GPUs can bring, Nvidia took center stage — and the rest is history.

Today, companies have a few options when they need high-powered chips to launch an AI program or set up a data center — other players, from Intel TO Advanced microdevicescreate rival AI chips to power tasks like training and inferring AI models. Some companies such as Meta platformsthey even make some of their own chips to power their AI workloads. That’s why the biggest investor concern about Nvidia right now is increasing competition in the market.

Now, let’s consider the recent move made by Musk and Ellison. The two billionaires took Nvidia CEO Jensen Huang out to dinner and “begged” him for more GPUs, according to a report in wealth. Ellison said he and Musk told Huang, “Please take our money.”

Why should a pair of powerful CEOs beg for GPUs instead of ordering more? Demand still outstrips supply, even as Nvidia works around the clock to keep up. But instead of turning to other suppliers, Ellison and Musk decided to talk to Huang and plead their case.

Early stages of AI development

Now let’s consider what this means for Nvidia. First, it shows that the company’s revenue growth should continue at a high level — Ellison, Musk and others are still in the early stages of AI development, and everyone is hoping to be the first to cross the finish line with a winning AI product. or the platform. So the demand for AI chips is increasing.

Next, and the most important point here, is that Nvidia doesn’t have to worry about competition just yet. Yes, some companies build their own chips on top of Nvidia’s — but demand is so high that right now Nvidia can’t meet 100% of everyone’s needs, and its customers have recognized this and planned ahead . In other cases, less expensive chips may be fine for certain tasks.

But overall, what Ellison and Musk have done illustrates just how important Nvidia GPUs are to the AI ​​landscape — and that big companies would rather beg Huang for more than turn to rival hardware.

That’s great news for Nvidia shareholders today, and given its strengths in innovation, it’s good news for those looking to hold onto the stock for the long haul.