200 Billion Reasons to Invest in Nvidia Stock

On May 20, Nvidia (NASDAQ: NVDA) released its financial results for the first quarter of fiscal year 2027, which ended on April 26. Despite what the market's reaction suggests -- shares were trending slightly down following the chipmaker's update -- Nvidia's results were strong. The company's revenue of $81.6 billion soared by 85% year over year, beating its own projection and analyst estimates.

The tech leader's adjusted net earnings per share came in at $1.87, 140% higher than the year-ago period. Further, Nvidia's second-quarter guidance was strong. Beyond Nvidia's results, management made several comments that suggest the company's medium-term outlook remains bright. Let's look into one of them and discuss what it means for investors.

Image source: The Motley Fool.

Tapping into a new opportunity

Nvidia remains the undisputed leader in the GPU (Graphics Processing Unit) space, with a market share of more than 90%, according to some estimates. GPUs are especially well-suited for training artificial intelligence (AI) models because they can perform many calculations in parallel. That's why demand for Nvidia's AI chips has been relentless in recent years, driving outstanding revenue and earnings growth. However, we are moving into a new era in the AI revolution: Agentic AI.

In this new world order of AI agents, or autonomous systems that can plan and execute actions toward a goal with little human supervision, CPUs (Central Processing Units) will become increasingly important. The inference phase of AI, where trained models perform what they were designed to do (agents are firmly in this phase), runs on CPUs.

It is to that end that Nvidia developed its Vera CPU that can be used as a stand-alone chip or bundled with the Rubin GPU. Vera CPU was specifically designed to handle agentic AI workloads. And it is opening up a huge market for Nvidia, according to management. As the company's CFO, Colette Kress, said:

Vera CPU opens a brand new $200 billion TAM [Total Addressable Market] for Nvidia, a market we have never addressed before. And every major hyperscale and system maker is partnering with us to get it deployed. We have visibility to nearly $20 billion in total CPU revenue this year.

Of course, Nvidia isn't the only company seeking to cash in on the increased adoption of agentic AI. Tech companies that have dominated the server CPU market for a long time, Advanced Micro Devices and Intel, are already hard at work here. However, Nvidia does not need to capture a 90% share of this market. The company's dominance in GPUs should remain a significant growth driver, and if it can make some headway in the CPU space, that will provide yet another boost to the business.

In other words, Nvidia's shares haven't peaked yet. The company's stock price may have declined post-earnings due to the market's outrageously high expectations, but its medium-term prospects remain attractive. It is still time to invest in Nvidia.

Prosper Junior Bakiny has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool has a disclosure policy.