Nvidia's Future: Where Will It Stand in Three Years?

Nvidia (NASDAQ: NVDA) has proven to be a lucrative investment option over the past three years, turning an initial investment of $1,000 into over $4,500. This impressive growth comes from a substantial increase of 354% in the company's stock price, fueled by its leading position in the booming market for artificial intelligence (AI) chips.

During this period, Nvidia's stock has significantly outperformed the Nasdaq Composite index, which saw a more modest gain of 23%. The stock's extraordinary performance is attributed to rapid growth in Nvidia's revenue and profits, as both consumers and governments have been eager to acquire AI chips for training and deploying AI models.

As we enter 2025, it's a good time to examine Nvidia's prospects and determine whether this high-growth AI stock can continue to provide value to investors.

Nvidia's Vast Market Potential Indicates Further Growth

Nvidia's business has expanded remarkably, and forecasts suggest that the company will close out fiscal 2025 with a revenue of around $128.6 billion. This estimate combines the predicted revenue of $37.5 billion for the fourth quarter with the $91.1 billion earned in the first three quarters.

This revenue figure is a significant increase from $26.9 billion recorded in fiscal year 2022, indicating a compound annual growth rate (CAGR) of 68% over three years. Investors might be curious if Nvidia can sustain such remarkable revenue growth in the upcoming years.

If Nvidia achieves a consistent 68% CAGR over the next three years, its revenue could approach $610 billion by fiscal 2028. Although this target may seem ambitious, Nvidia has identified a vast market opportunity, particularly a $1 trillion revenue potential in the data center sector alone.

CEO Jensen Huang highlights that "every single data center will have GPUs" to facilitate accelerated computing, which harnesses specialized hardware like Nvidia's graphics cards to perform complex tasks more efficiently while conserving energy. This trend is set to be crucial in managing data center power consumption effectively.

Additionally, the growth of new data center infrastructures will serve as a long-term advantage for Nvidia. McKinsey forecasts a 19% to 22% annual increase in global data center capacities through 2030 to satisfy the rising demand for generative AI. Given that Nvidia is projected to close fiscal 2025 with nearly $100 billion in revenue from this segment, it still has ample room to expand, considering it has only tapped into about 10% of the $1 trillion opportunity.

Furthermore, Nvidia commands over 85% market share in the data center GPU market, indicating that the growing trend of accelerated computing could considerably enhance Nvidia's revenues in this area over the next three years.

Nvidia's growth potential isn't solely tied to data centers. The company’s GPUs support various applications, including digital twins for industrial use, gaming, AI personal computers, automobiles, and robotics. Last quarter, Nvidia reported a robust revenue of $4.2 billion from these three sectors combined, signifying a 20% year-over-year increase.

The gaming GPU market alone is expected to grow from 2023 to 2028, providing an additional $49 billion revenue boost with a projected CAGR of 21%. Nvidia dominates the gaming GPU market with a commanding 90% market share, placing it in a strong position to capture this growth.

Simultaneously, the digital twin market is anticipated to explode from $10 billion in revenue in 2023 to $110 billion by 2028. Nvidia’s GPUs play a vital role in this market by creating virtual blueprints of factories and optimizing automated processes for enhanced efficiency. Notable companies employing Nvidia's GPUs for digital twins include Foxconn, Reliance, and Toyota.

These diverse growth avenues indicate that Nvidia is well-positioned to continue its remarkable expansion over the next few years.

Potential Upside for Investors

Having established that Nvidia possesses the ability to maintain strong revenue growth, we can explore the potential upside for its stock price based on consensus forecasts. According to available estimates, Nvidia's earnings are projected to rise from $2.95 per share in fiscal 2025 to $5.59 in fiscal 2027, translating to an annual earnings growth rate of 37% over the next two years.

If we adopt a conservative perspective and anticipate a continued 30% growth in earnings for fiscal 2028, Nvidia's earnings per share could reach $7.27. If we apply the Nasdaq-100's earnings multiple of 33—as a benchmark for tech stocks—this could position Nvidia’s stock price at around $240.

This projection aligns with a potential 79% increase from current price levels over the next three years. As Nvidia is currently trading at 32 times forward earnings, it appears to be a compelling investment opportunity, suggesting that now may still be a good time for investors to consider purchasing this AI stock, as it holds considerable growth prospects moving forward.

Note: The information provided in this article is intended for informational purposes only and does not constitute investment advice.

Nvidia, Investment, Growth