Tech stocks bounce back after worst stock market performance in more than 10 years Nasdaq Composite An increase of 29% so far this year. The reform looks set to add new members to a highly exclusive group of US companies with a market cap of over $2 trillion. There are only two members of this select group as of market close on Tuesday:
- Apple — $2.7 trillion
- Microsoft — $2.4 trillion
It appears that one company is bound to join this privileged pair. NVIDIA (NVDA 3.17%). The maker of graphics processing units (GPUs) only recently joined the elite group of companies with a market capitalization of $1 trillion, but it looks like it’s destined for bigger things. Nvidia stock has soared in 2023, rising more than 200% at the time of this writing, driven by strong demand for processors used to power artificial intelligence (AI) systems. To join this prestigious club, Nvidia’s value would need to rise 77% from Tuesday’s market close.
Let’s take a look at several growth drivers that together will propel Nvidia stock to new highs.
a long history of performance
A quick review of the factors that put Nvidia in this rare position suggests that there could be more gains in store. Over the past decade, Nvidia has grown its revenue by 582% (at the time of this writing), while its net income has grown by 1,620%. Although there have been normal ups and downs, the company’s consistent performance has helped its stock price to rise tremendously, rising 12,190%.
NVDA Revenue (Quarterly) Data by YCharts
In the company’s fiscal 2024 first quarter (ending April 30), Nvidia’s performance was surprisingly resilient, especially considering the economic headwinds. Revenue of $7.19 billion was down 13% year over year, although tighter cost controls boosted earnings per share (EPS) to $0.82, up 28%. Its overall lackluster performance wasn’t particularly surprising, given the expected 38% drop in gaming revenue.
NVDA Revenue (Quarterly) Data by YCharts
What surprised investors was Nvidia’s outlook. For the current quarter, the company called for revenue of $11 billion, an increase of 64% year-over-year and 53% sequentially. Management attributed the improved outlook to strong demand for processors used for AI, which is driven by rapid adoption of generic AI.
It was certified by Nvidia record Data center revenue of $4.28 billion – achieved despite economic headwinds – overtook the gaming segment as the company’s primary earner.
If Nvidia can build on that success, an improvement in the gaming market could supercharge the company’s results, sending it even higher.
It’s important to note that much of this year’s increase in stock price has been the result of excitement over the multitude of potential applications for AI. on analysts Goldman Sachs While the economic impact is estimated to be $7 trillion by 2030 Morgan Stanley comes to about 6 trillion dollars. But even the most conservative estimates are fascinating. TD Cowen analyst John Blackledge concludes that spending on generic AI software will exceed $81 billion by 2027.
We don’t really know what the evolving AI market will be like, but the general consensus is that it will Big bargain — and Nvidia’s cutting-edge AI processors are well-positioned to benefit from this secular tailwind.
multiple growth drivers
As exciting as the potential for generic AI is, Nvidia has done well over the past decade without it. A look at several of its current growth markets shows why this has been the case.
Nvidia remains the undisputed leader in the discrete desktop GPU market, even though sales have plummeted to levels not seen in decades. According to data provided by John Peddie Research (via Tom’s Hardware), the company controls a dominant 84% of the market. According to Mordor Intelligence, the gaming GPU market is expected to grow in the coming years, growing from $2.7 billion in 2023 to $11.7 billion by 2028, which is a compound annual growth rate (CAGR) of 34%. There’s no doubt that the graphics card market will re-emerge – probably sooner than later – and when it does, Nvidia will benefit.
Then there’s the data center market. According to Angelo Zino, senior equity analyst at CFRA Research, Nvidia has a market share of more than 95%. According to Prusient and Strategic Intelligence, the data center market is expected to continue its strong growth, growing from $263 billion in 2022 to $603 billion by 2030, a compound annual growth rate of 11%. The combination of growing opportunity and market dominance provides Nvidia with another secular tailwind.
The company has also locked onto the machine learning market, a more established area of AI that produces self-improving algorithms. Nvidia has an estimated 95% share of that market, according to data compiled by New Street Research.
Nvidia currently sports a market cap of about $1.13 trillion, which means the stock will need to grow less than 13% annually to achieve a $2 trillion market cap by 2028. Given the many growth drivers, the rebounding gaming market and strong secular tailwinds, this doesn’t seem like a very high bar to clear.
My money is on nvidia.
Danny Vena holds positions at Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Goldman Sachs Group, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.