Nvidia (NASDAQ:NVDA) The stock has significantly outperformed the broader market over the past five years with stunning gains of more than 1,800% – which is well above S&P 500 The index rose 71% – and a big reason for the chip giant’s huge rise is its dominant position in the artificial intelligence (AI) chip market.
However, can Nvidia sustain its AI-driven growth over the next five years and deliver further profits to investors? Let’s find out.
The massive growth of the AI chip market should give Nvidia a long-term tailwind
Allied Market Research estimates that the global AI chip market was worth nearly $15 billion in 2022. However, by 2032, the market research firm expects AI chip sales to generate nearly $384 billion in annual revenue. According to Vijay Rakesh of Mizuho Securities, Nvidia is ahead in this space, controlling an estimated 94% of the AI chip market last year.
Nvidia’s first-mover advantage in AI chips has paid off handsomely for the company. Its graphics cards are extremely popular and are used by major cloud computing providers and startups to train AI models, including ChatGPT. As a result, Nvidia’s data center revenue has grown at a staggering pace. In fiscal year 2024, which ended January 28, 2024, the company reported data center revenue of $47.5 billion, a massive 217% increase year-over-year.
However, Nvidia is expected to cede some ground to rivals in the AI chip market. Rakesh, for example, expects the company’s share of AI chips to fall to 75% in the next few years Intel (NASDAQ:INTC) And modern micro devices (NASDAQ:AMD) bring competitive offers to the market. Thanks to growing demand for its AI accelerators, AMD reported an 80% increase in sales of its data center chips to $2.3 billion in the first quarter of 2024.
The Nvidia competitor expects to sell $4 billion worth of AI graphics cards this year, doubling its original estimate of $2 billion. However, analysts expect AMD to end the year with up to $8 billion in revenue from sales of AI-focused data center chips.
Intel management also noted during the company’s most recent earnings call that the new Gaudi 3 data center accelerators could gain traction and generate $500 million in revenue in the second half of 2024, followed by one stronger results next year. However, Nvidia is expected to be in a league of its own.
The chipmaker could sell $87 billion in data center graphics cards this year, according to market research firm Omdia. That would be a huge jump from the $34 billion the company generated last year from sales of data center chips. Even better, Rakesh predicts that Nvidia could sell $280 billion worth of data center graphics cards in 2027, despite the potential loss of market share. This is not surprising considering how quickly this area is growing.
Put simply, there is enough room for Nvidia to grow in the AI chip market, even as competition becomes stronger. When you consider the potential growth the company could see in other markets like gaming, it’s easy to see why analysts expect Nvidia to post healthy earnings growth over the next five years.
What upside can investors expect over the next five years?
Consensus estimates are that Nvidia’s profits will grow just over 35% annually over the next five years. Based on the company’s fiscal 2024 earnings of $12.96 per share, its bottom line after five years could rise to $58.11 per share, assuming it increases at the forecast rate.
The good thing is that the company appears capable of delivering the growth that analysts expect from it based on the points discussed above and Nvidia’s superior pricing power in the AI chip space. Unsurprisingly, analysts have significantly increased Nvidia’s earnings estimates for the current and next two fiscal years, as can be seen in the chart below.
Therefore, there’s a good chance that Nvidia’s five-year earnings could actually reach the forecast $58.11 per share. Multiplying forecast earnings by Nvidia’s average five-year earnings multiple of 39 suggests the stock price could reach $2,266 per share after five years (barring stock splits or other events). That would represent a 162% increase from current levels.
So investors who haven’t bought this AI stock yet may still consider doing so, as its impressive rally appears to be sustainable over the next five years.
Should you invest $1,000 in Nvidia now?
Before you buy Nvidia stock, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Nvidia wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $525,806!*
Stock Advisor provides investors with an easy-to-understand roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of April 30, 2024
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long $45 January 2025 calls on Intel and short $47 May 2024 calls on Intel. The Motley Fool has a disclosure policy.
Where will Nvidia stock be in 5 years? was originally published by The Motley Fool