The GPU giant could keep growing at a remarkable pace.
The past five years have been stunning for Nvidia (NVDA -0.03%) shareholders as the company's market cap has soared by a phenomenal 2,900%, turning an investment of just $100 in the stock half a decade ago into just over $3,000 as of this writing.
Nvidia stock's 30x rise in these past five years can be justified by the multiple catalysts that have been driving the company's growth. The exceptionally robust demand for its graphics processing units (GPUs) that are deployed in personal computers (PCs), data centers, and automotive applications has led to a terrific increase in the company's revenue and earnings during this period.
NVDA Revenue (TTM) data by YCharts.
Now, it would seem far-fetched to expect Nvidia stock to rise another 30x over the next half-decade considering that it has a market cap of just over $3 trillion right now and is one of the three largest companies in the world. The entire global economy, for comparison, was worth an estimated $105 trillion in 2023. However, considering the catalysts ahead, there is a good chance that shares of Nvidia could continue heading higher over the next five years, even if those gains may not be as astronomical as those of the past five.
AI is supercharging Nvidia's growth
For Nvidia's fiscal 2024, which ended Jan. 28, its revenue stood at $60.9 billion, up from $11.7 billion in its fiscal 2019. So, Nvidia's top line has increased fivefold over the last five years. Looking ahead, analysts are forecasting something similar may happen thanks to the massive growth driver that is the artificial intelligence (AI) market.
Mizuho Securities is anticipating Nvidia's data center revenue alone will jump to $280 billion in 2027, which will coincide with the majority of Nvidia's fiscal year 2028. That would be a huge increase over the $47.5 billion data center revenue the company reported in fiscal 2024 (which ended in January this year and coincided with 11 months of 2023) and the $89 billion revenue it is projected to generate from this market in the current fiscal year 2025.
One reason why that forecast may be accurate is that the market for AI chips is expected to reach a whopping $400 billion in annual revenue in 2027 (which would be fiscal 2028 for Nvidia), according to Nvidia's peer AMD. Mizuho's Nvidia revenue estimate for calendar 2027 (fiscal 2028 for Nvidia) suggests that it would be controlling 70% of the AI chip market at that time. Though that would be lower than the 90%-plus share that the company currently commands in this market, it would still be able to deliver a massive bump in revenue considering the potential size of the AI chip market after four fiscal years.
What's worth noting here is that even if the AI chip market takes longer than forecast to hit $400 billion in revenue and even if Nvidia's share shrinks to as low as 50%, its data center revenue alone could grow still four-fold in the coming years.
These catalysts could give Nvidia an additional boost
Nvidia has other potential growth drivers that could contribute to the expansion of its top line.
For instance, the market for gaming GPUs that are installed in PCs is likely to benefit from an increase in spending on gaming hardware. Statista predicts that the gaming hardware market will generate $161 billion in revenue in 2024, and forecasts that it could grow to $241 billion by 2029. Nvidia should be a big beneficiary of this growth considering that it controlled an impressive 88% of the market for PC graphics cards in the first quarter of 2024.
Meanwhile, in the first quarter of its fiscal 2025, growing demand for digital twin systems drove revenue in Nvidia's professional visualization business up by 45% year over year to $427 million.
Nvidia is scratching the surface of a potentially huge opportunity in the digital twin market. According to a forecast from Mordor Intelligence, that space could generate $126 billion in revenue in 2029. From this year's forecast $26 billion, that would be a compound annual growth rate of 37%. More importantly, Nvidia is building a solid base of customers for its digital twin offerings. This was evident from the remarks made by CFO Colette Kress on the latest earnings conference call:
Companies are using Omniverse to digitalize their workflows. Omniverse-powered digital twins enable Wistron, one of our manufacturing partners, to reduce end-to-end production cycle times by 50% and defect rates by 40%. And BYD, the world's largest electric vehicle maker, is adopting Omniverse for virtual factory planning and retail configurations.
Kress added that industrial software developers such as Cadence, Ansys, Dassault, and Siemens are some of the major names that are adopting its digital twin software. As such, there is a good chance that Nvidia's revenue growth over the next five years could match the growth that it has experienced in the past five. In fact, analysts are forecasting that its top line will triple in the space of just three fiscal years (from fiscal 2024 levels of $60.9 billion).
NVDA Revenue Estimates for Current Fiscal Year data by YCharts.
Assuming Nvidia does hit $184.5 billion in revenue in fiscal 2027, its top line would have increased at a compound annual rate of 45%. If the semiconductor giant's growth tapers off in the two that follow years to, let's say 25% a year, its revenue could reach $288 billion after five years. That would be close to a 5x increase in its revenue from fiscal 2024, and would be almost equivalent to the growth clocked by the company in the past five years.
Of course, there is a good chance that the company could grow at a faster pace thanks to the catalysts discussed above. That's why investors who haven't bought this growth stock yet can still consider adding Nvidia to their portfolios. The tech giant seems poised for much more upside over the next five years.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Cadence Design Systems, and Nvidia. The Motley Fool recommends Ansys. The Motley Fool has a disclosure policy.
