Meet the Newest Stock-Split AI Stock in the Dow Jones. It Soared 925% in 2 Years, and Wall Street Says It’s Still a Buy

Semiconductor company Nvidia (NVDA 1.99%) has been one of the hottest stocks on Wall Street since the launch of ChatGPT sparked the artificial intelligence (AI) boom. In fact, Nvidia shares surged 910% during the last two years, making it the best-performing member of the S&P 500 (^GSPC 0.41%). That price appreciation also led to a 10-for-1 stock split earlier this year.

Last week, S&P Global saidNvidia will join the blue-chip Dow Jones Industrial Average (^DJI 0.69%) on Nov. 8. Stock selection is not governed by specific rules, but the Index Committee generally selects companies that meet three criteria: They usually have excellent reputations, exhibit sustained earnings growth, and are followed by a large number of investors.

Importantly, Wall Street is still overwhelmingly bullish on Nvidia despite the recent run-up in its share price. Indeed, among the 64 analysts that follow the company, 92% rate the stock a buy. Moreover, the median price target of $150 per share implies 11% upside from the current share price of $135.

Here’s what investors should know about Nvidia.

Nvidia participates in several parts of the artificial intelligence economy

Central processing units (CPUs) can handle complex computing tasks like artificial intelligence (AI), but graphics processing units (GPUs) are better suited to such workloads because they can perform technical calculations faster and more efficiently. Nvidia dominates the market for data center GPUs, and its revenue share in AI accelerators exceeds 80%.

Importantly, numerous analysts expect the company to maintain its market share for at least two to three years. One reason for that confidence is CUDA, a robust ecosystem of software development tools that Nvidia has been building for nearly two decades. CUDA streamlines data preparation, model training, and application development across various AI use cases, including conversational chatbots, content generation, and autonomous machines.

Another reason analysts expect Nvidia to maintain its dominance in AI accelerators is its participation in other hardware verticals. For instance, Nvidia is the market share leader in AI networking gear, and it recently introduced its first data center server CPU. That lets the company build tightly integrated AI systems with a lower cost of ownership that those stitched together with products from multiple vendors, according to CEO Jensen Huang.

In May, Toshiya Hari at Goldman Sachs wrote, “We believe Nvidia will remain the de facto industry standard for the foreseeable future given its competitive advantage that spans its hardware and software capabilities, as well as the installed base and ecosystem it has built over multiple decades, and the pace at which it is and will be innovating over the next several years.”

Nvidia has an important catalyst on the horizon in the launch of Blackwell

CFO Colette Kress says the production ramp of Nvidia’s next-generation Blackwell GPU will begin in the current quarter and continue into next year. Blackwell chips handle AI training up to four times faster and AI inference up to 30 times faster than its predecessor Hopper. Demand for the new GPUs is so strong that they are already sold out for 12 months.

Beyond the Blackwell launch, Nvidia should continue to benefit from the AI infrastructure buildout for years to come. Indeed, AI accelerator sales are projected to grow at 29% annually through 2030, according to Grand View Research. Meanwhile, AI networking sales are forecast to compound at 33% annually through 2032, according to Bloomberg.

Accordingly, Wall Street expects Nvidia earnings to increase at 35% annually over the next three years. That consensus integrates estimates from seven analysts, and it makes the current valuation of 63 times earnings look reasonable. In fact, those figures give a PEG ratio of 1.8, which is a material discount to the three-year average of 3. Investors should feel comfortable buying a small position in this new Dow Jones stock.

Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Goldman Sachs Group, Nvidia, and S&P Global. The Motley Fool has a disclosure policy.