Early June last year I wrote an article with an identical headline trying to figure out how much of an advantage there is Nvidia (NASDAQ: NVDA) stocks that can deliver on this, and I have to admit my prediction was way off.
Shares of Nvidia have risen 196% since that article was published last year, more than tripling in value. I estimated that this high-flying semiconductor stock could double in value over three years, but it exceeded those expectations by a huge margin.
Let’s take a look at why that’s the case and see how much upside this high-flying chipmaker can offer after the stellar profits it’s posted over the past year.
Nvidia’s growth has far exceeded Wall Street expectations
A year ago, analysts expected Nvidia to post revenue of $42.9 billion and earnings of $7.68 per share for fiscal 2024. Instead, the company ended the year with adjusted earnings of $12.96 per share on revenue of $60.9 billion. It’s also worth noting that analysts had forecast that Nvidia would post revenue of $50.6 billion in fiscal 2025, followed by $62.7 billion in fiscal 2026.
As the chart below shows, analyst expectations for Nvidia have risen dramatically over the past year.
That’s not surprising, considering the chipmaker has delivered better-than-expected growth quarter after quarter thanks to soaring demand for its artificial intelligence (AI) chips. In the first quarter of fiscal 2025 (ended April 28), for example, Nvidia’s revenue rose 262% year over year to $26 billion, and earnings jumped 461% to $6.12 per share.
This strong growth has led analysts to further increase their growth expectations for the company, as shown in the previous chart. Nvidia CEO Jensen Huang says this stellar growth will continue as “enterprises and countries work with Nvidia to shift trillions of dollars’ worth of traditional data centers to accelerated computing and build a new type of data center – AI factories – to a new raw material: artificial intelligence.”
Investors should note that Nvidia is playing a pioneering role in the spread of AI through its hardware and software offerings. The company commanded a whopping 94% of the AI graphics processing unit (GPU) market last year and, despite the best efforts of its rivals, has seen little competition in the space. With the global GPU market expected to grow at a compound annual growth rate of 31% through 2032, generating $594 billion in annual revenue by the end of the forecast period, there is room for Nvidia to continue growing at a robust pace over the long term.
Furthermore, Nvidia has other catalysts beyond the AI data center market. It is also the leading supplier of GPUs used in personal computers (PCs) with an estimated 88% market share. This puts the company in a solid position to achieve healthy growth going forward thanks to the lucrative opportunities present in the overall GPU market.
Healthy earnings growth indicates more upside potential
Investors have already seen how quickly Nvidia’s revenue is expected to grow over the next three fiscal years. The good part is that the revenue growth will also feed into the bottom line. Analysts expect the company’s profits to rise 43% annually over the next five years. Based on fiscal 2024 earnings of $1.21 per share, Nvidia’s operating profit could rise to $7.24 per share after five years.
By multiplying the expected profit after five years by the Nasdaq-100‘s forward earnings multiple of 29 (using the index as a benchmark for technology stocks) points toward a share price of $210. That would be a 78% jump from current levels.
But given the trillion-dollar end-market opportunity the company is sitting on and the rapid pace at which its end markets, such as AI chips, are growing, it wouldn’t be surprising to see this tech stock post stronger gains over the next five years and beat its $200 price target (the high end currently expected).
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
How High Can the Nvidia Stock Price Go? was originally published by The Motley Fool
