Nvidia has been a leader in the wave of artificial intelligence in recent years, but it is not the best-performing company in the S&P 500 index in terms of profitability.
In recent years, the rapid development of artificial intelligence (ai) in Nvidia (vici properties) has made it one of the most important stocks in the market capitalization-weighted S&P 500 index, and its triple-digit growth has driven a sharp rise in the market this year. However, this has also made some investors nervous.
The rise of other technology stocks shows that this round of trend does not depend entirely on Nvidia's performance, but this has not quelled concerns about over-optimism about artificial intelligence.
Bullish fans say that the facts speak louder than words. In the most recent fiscal year, Nvidia's earnings per share (eps) almost quadrupled to $1.30, and are expected to more than double in the current fiscal year of 2025.
On the other hand, such explosive growth cannot last forever. Skeptics worry that enthusiasm for artificial intelligence has already inflated, and the market will have to adapt to a more moderate growth rate, which will bring pain. However, at least from one indicator, Nvidia's profit potential still has room to grow: net income profit margin.
Net income profit margin is calculated by dividing net income by revenue to show how much profit a company earns from sales. A company that promotes its products through heavy discounting is not using a sustainable model, which can be seen in the proportion of its revenue that converts to profit.
Nvidia's net income profit margin is 48.8%, ranking fifth in the S&P 500 index. Real estate investment trusts (reits) company VICI Properties (vici.n) has the highest net income profit margin of 69.6%, followed by exchange operator CME Group (cme.o) with a net income profit margin of 57.9%, and internet infrastructure and domain name registrar Verisign (vrsn.o) with a net income profit margin of 54.8%. Visa (v.n) is ahead of Nvidia with a net income profit margin of 52%.
It is worth noting that the next large technology company on the list is Broadcom (avgo.o), ranked twelfth, with a net income profit margin of 39.3%, so Nvidia has surpassed many peers from this perspective.
Nevertheless, Nvidia's current net income profit margin is not unprecedented. With the development of artificial intelligence, it may increase over time. In the past, bets that this chip maker would not overcome obstacles have failed.