NVIDIA (NVDA 1.40%) The stock has fallen from its June high as the stock market appears to be debating the future of the AI ​​boom.

Some investors believe the rally is overheated because the new technology has not yet produced a “killer app” or caused major disruption in the economy. This became clear when alphabet And Microsoft Share prices of both companies declined following the release of their latest earnings reports as investors questioned the level of spending on AI infrastructure and wondered whether the tech giants would see a return on those investments.

However, there are still many AI bulls out there, and one of them is former Google CEO Eric Schmidt. In a recent talk at Stanford University, Schmidt commented on the development of artificial intelligence, saying that companies plan to spend tens or even hundreds of billions of dollars on AI infrastructure. For example, Microsoft and OpenAI are planning a massive data center and supercomputer project called Stargate AI that could cost as much as $100 billion.

Schmidt continued, “(OpenAI CEO) Sam Altman is a close friend. He thinks it will cost about $300 billion, maybe more…” The “it” here refers to meeting their AI infrastructure needs.

He continued, “If $300 billion goes entirely to Nvidia, you know what to do on the stock market,” but added, “That’s not a stock market recommendation.”

Still, it’s a reminder for investors not to lose sight of the long-term goal when it comes to AI, as the rollout is just beginning.

Image source: Getty Images.

300 billion dollars could be just the beginning

Keep in mind that Schmidt’s quote only refers to OpenAI’s infrastructure requirements, so if that’s true, the demand in the industry is much larger.

In fact, Sam Altman is trying to raise up to $7 trillion to expand the global semiconductor industry to achieve artificial general intelligence (AGI), that is, AI that is as capable or more capable than humans.

AGI is the declared goal of OpenAI, and other tech visionaries like Tesla’s Elon Musk is also working towards this. Investors can expect them to continue to build out the required computing power until AGI is achieved. Nvidia CEO Jensen Huang has predicted that artificial general intelligence is still five years away, so the market will likely see a surge in AI investment during this time.

What this means for Nvidia

Market volatility and investor doubts aside, the tech industry’s expectations for AI have not changed. The race between the Magnificent Seven and other companies will determine the industry’s winners for the next generation, and building the necessary infrastructure is crucial.

Nvidia remains by far the leading supplier of data center GPUs and other components needed to run AI models like ChatGPT, and will likely continue to dominate this market even as competition from AMD And Intel comes online.

Nvidia had an estimated 98% share of the data center GPU market in 2023, and the company’s revenue grew 427% to $22.6 billion in the first quarter. That growth rate will slow as it overtakes the initial generative AI investment boom after the launch of ChatGPT, but Nvidia will almost certainly grow strongly as the race to AGI picks up steam.

Investors can argue about the appropriate valuation of Nvidia stock, but the strength of the company and its future potential are hard to deny. Demand for its products still has a long way to go if AGI’s needs and statements from people like Schmidt and Altman are to be believed.

In fact, Schmidt’s biggest concern as AI infrastructure boomed was finding enough electricity to power these massive data centers. While that might prove challenging in the future, it makes sense to follow his advice and buy Nvidia stock now.