The last two years have been absolutely phenomenal Nvidia (NASDAQ: NVDA) investors, as the graphics card specialist’s shares rose 736% during this period as it became clear that the company will play a central role in the spread of artificial intelligence (AI).
Nvidia’s stellar returns can be justified by its rapid revenue and profit growth during this period, due to its monopoly position in the AI chip market. The good thing is that Nvidia seems poised to continue its stunning rally over the next three years, especially after management’s comments on the company’s recent earnings conference call.
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Let’s take a look at the reasons why Nvidia investors can expect this high-flying semiconductor stock to deliver more upside potential.
When Nvidia announced third-quarter fiscal 2025 results (for the three months ending October 27) on November 20, it reported record revenue of $35.1 billion. The company’s revenue rose 94% year over year, mainly due to a 112% spike in data center revenues to $30.8 billion.
Nvidia originally expected fiscal third-quarter revenue to come in at $32.5 billion, but blew past that estimate thanks to aggressive production increases of its next-generation Blackwell processors. The company is witnessing “staggering demand” for its Blackwell AI chips, which is why it is “racing to scale up supply.”
It’s not surprising why Blackwell’s question is so solid. After all, recent tests indicate that Nvidia’s latest generation of AI processors can deliver a 2.2x performance jump over the previous generation of Hopper chips. Furthermore, this tremendous performance boost comes with a drop in computing costs. As CFO Colette Kress noted:
The 64 Blackwell GPUs are required to run the GPT-3 benchmark, compared to 256 H100s or a fourfold cost savings.
So Nvidia is doing the right thing by increasing the output of its Blackwell processors, even if it takes a short-term margin hit. The company expects non-GAAP (adjusted) gross margin to be 73.5% in the current quarter, down from 76.7% in the same period last year. However, Kress points out that Nvidia’s gross margin will grow back to the mid-70s once production of the Blackwell processors is fully ramped up.
Japanese investment bank Mizuho recently raised Nvidia’s 2025 GPU sales estimate by 10% to 30 million units, citing rising demand for these chips in gaming, data centers and AI. This explains why consensus estimates now predict strong growth for Nvidia in fiscal years 2025 and 2026.
A major reason why Nvidia has been able to maintain a tremendous grip on the GPU market is because of the technological advantage it enjoys over rivals. The likes of AMD have been catching up and Nvidia has left the competition in the dust by capturing the lion’s share of the AI chip space. The good part is that Nvidia has an aggressive product roadmap that could help it maintain its dominance in this lucrative market.
For example, Nvidia’s Blackwell processors will be succeeded by chips based on the Rubin architecture in the first half of 2026. Analysts estimate that Nvidia will produce the Rubin chips using a 3-nanometer (nm) process node from Taiwanese semiconductor manufacturing. That would be an improvement over Blackwell’s 4NP process node, an improved version of TSMC’s 5nm process.
A smaller process node means Nvidia can pack more transistors into a compact area, ideally leading to an improvement in computing power and a reduction in power consumption. So it won’t be surprising to see Rubin help Nvidia maintain its technological lead over rivals in the AI chip market and maintain its great pricing power in this area.
With the AI chip market expected to generate as much as $500 billion in revenue by 2028, Nvidia’s dominance in this market will likely lead to robust top- and bottom-line growth, according to AMD. That explains why, as seen earlier, analysts have increased their growth expectations for the company for the current and next fiscal years.
A similar trend can be observed for the 2027 budget year (which will coincide with most of the 2026 calendar year).
The chart above shows that analysts expect Nvidia to post earnings of $5.55 per share in fiscal 2027. Assuming the company is trading at 40.8 times earnings at that point (in line with its five-year average forward earnings), the share price could fall. reached $226 within a few years. That would be a 67% jump from current levels.
Considering that Nvidia is now trading at 36 times forward earnings, investors can buy this AI stock at an attractive valuation right now, and they may not want to miss the opportunity as the company could post stronger earnings if the market decides its handsome growth to reward. with a richer manifold.
Consider the following before buying shares in Nvidia:
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Where will Nvidia stock be in two years? was originally published by The Motley Fool
