NVIDIA's Meteoric Rise Has More Room for Growth
On Jun 18, NVIDIA Corp. NVDA — the undisputed global leader of the generative artificial intelligence (AI) chipset developer space — added another jewel to its crown. The AI chipset behemoth has become the world’s most valuable company with respect to market capital, surpassing the software giant Microsoft Corp. MSFT. Just two weeks ago, the company overtook the second position from another global tech giant, Apple Inc. AAPL.
The stock price of NVIDIA soared 175% year to date, 215% over the past 12 months and an astonishing 3,400% in the last five years, respectively. The company’s market capital crossed $1 trillion on Jun 13, 2023, for the first time, $2 trillion on Mar 1, 2024, and $3 trillion on Jun 5, 2024.
On May 22, NVIDIA reported blockbuster first-quarter fiscal 2025 results smashing all expectations. Revenues soared 262% year over year, marking the third straight quarter of growth in excess of 200%. The EPS was also well above the consensus estimate.
The AI market has gathered pace in the past few years, buoyed by the rapid penetration of digital technologies and the Internet. These astonishing results were primarily due to sky-high shipments of NVIDIA’s Hopper graphics processors, especially H100 GPU.
For the first time, NVIDIA signaled that the customers of its high-end AI GPUs will be able to make an “immediate and strong return” on their investment. Notably, about 45% of the company’s data center revenues come from giant cloud providers like — Amazon.com.Inc. AMZN Web Services, Microsoft Azure, Alphabet Inc. GOOGL Cloud and Oracle Corp. ORCL Cloud.
Strong Guidance
Moreover, NVIDIA has given an impressive guidance even after three consecutive quarters of astonishing performances. Management expects sales of $28 billion in the fiscal second quarter, above the current consensus estimate of $26.6 billion.
Uninterrupted Product Innovation
On May 22, CEO Jensen Huang said that the company’s next-generation AI chip, Blackwell Ultra, would be the next driver. These chips will be available in data centers in the fourth quarter of fiscal 2025. Huang said, “We will see a lot of Blackwell revenue this year.” These chips are essential for customers’ interconnected infrastructure.
On Jun 2, at the Computex technology trade show in Taipei, NVIDIA unveiled its new AI chip architecture called “Rubin.” The Rubin architecture will have new GPUs to launch AI systems, CPUs and networking chips. It will also have new features like a central processor called “Vera.” Rubin is set to be introduced in 2026. NVIDIA will introduce an Ultra version of Rubin in 2027.
Generative AI Market to Flourish
The AI market has gathered pace in the past few years buoyed by the rapid penetration of digital technologies and the Internet. Despite an improving supply of AI chipsets, demand is likely to outpace supply, resulting in price hikes for chips. The market for AI is expected to show strong growth in the coming decade. Its current size of $200-$300 billion is expected to grow to nearly $2 trillion by 2030, as estimated by several research agencies.
PricewaterhouseCoopers International Ltd. estimated that AI could contribute up to $15.7 trillion to the global economy in 2030. Of this, $6.6 trillion is likely to come from increased productivity and $9.1 trillion should come from consumption-side effects.
What Next for NVIDIA?
NVIDIA is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. Over the years, this worldwide leader of the GPU chipset has shifted its focus from PC graphics to AI-based solutions that support high-performance computing, gaming, and virtual reality platforms.
In the near future, NVIDIA is expected to benefit in two ways. Demand for its Hopper chips remains strong owing to the significant adoption of generative AI and an industry-wide shift from central processors to NVIDIA-made accelerators. On the other hand, despite an improving supply of NVIDIA chipsets, demand is likely to outpace supply, resulting in price hikes for chips.
NVIDIA currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. The company has an expected revenue and earnings growth rate of 92.6% and more than 100%, respectively, for the current year (ending January 2025).
The Zacks Consensus Estimate for current-year earnings has improved 10.7% over the last 30 days. The company currently has a long-term (3-5 years) earnings growth rate of 37.6%. It recorded positive earnings surprises in the last four reported quarters, with an average beat of 18.4%.
Therefore, considering all these features, we believe that the momentum is likely to continue for this new darling of Wall Street. The chart below shows the price performance of NVIDIA year to date.
Image Source: Zacks Investment Research
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