Nvidia Will Soon Make More than Apple and Microsoft Combined

"Artificial intelligence has become the market's version of an industrial revolution. Every corner of the economy - cloud computing, utilities, networking hardware, data centers, and even power generation - is being reshaped by AI spending. At the center of that spending spree sits Nvidia ( NASDAQ:NVDA | NVDA Price Prediction)."

"Its graphics processing units, or GPUs, have become the picks and shovels of the AI gold rush. Companies from Microsoft ( NASDAQ:MSFT ) to Amazon ( NASDAQ:AMZN ) are pouring tens of billions into AI infrastructure because Nvidia's chips remain the fastest way to train and run large AI models."

"Arya estimates Nvidia could generate more than $400 billion in free cash flow over the next two years - a massive sum that is more than Apple ( NASDAQ:AAPL) and Microsoft combined over the same period. That is an astonishing figure considering Apple and Microsoft are already viewed as two of the market's premier cash-producing machines."

"Free cash flow matters because it represents money left after operating expenses and capital investments. It is the cash a company can actually use to reward shareholders, buy businesses, or strengthen its balance sheet. Despite that projected cash generation, Nvidia still trades at a discount to many of its peers. According to Bank of America, Nvidia trades at roughly a 50% discount to Magnificent 7 peers on forward earnings and at a 66% discount on enterprise value-to-free-cash-flow metrics."

AI spending is reshaping multiple parts of the economy, including cloud computing, utilities, networking hardware, data centers, and power generation. Nvidia sits at the center of this spending because its GPUs are widely used to train and run large AI models, making them the key infrastructure component for major technology companies. Despite strong AI demand, Nvidia’s stock largely moved sideways for much of the past year after a surge through 2023 and early 2024. Bank of America estimates Nvidia could generate more than $400 billion in free cash flow over the next two years. Free cash flow represents cash left after operating expenses and capital investments. Even with that projected cash generation, Nvidia trades at a discount to peers, including a roughly 50% discount on forward earnings and a 66% discount on enterprise value-to-free-cash-flow metrics.

Read at 24/7 Wall St.