NVIDIA's (NASDAQ:NVDA) stock is up 1,200% over the last five years, and 170% over the last 12 months. Before this run, NVIDIA was a small fish in a big pond with a market cap of less than $10 billion compared to Intel's (NASDAQ:INTC) $125-billion-plus market cap. What is NVIDIA doing to generate its impressive gains in such a competitive industry?

Besides robust revenue growth across key business segments, NVIDIA has a few things working in its favor. Unlike its competitors, NVIDIA focuses solely on the development of graphics processing units (GPUs), which have seen rising demand. NVIDIA was perfectly positioned to capture the surge in GPU demand from some of the world's most recognized companies spanning the technology and transportation industries.

Internal view of NVIDIA's Tesla V100 data center GPU.


Consistent revenue growth

Since the fiscal year that ended in January 2015, NVIDIA has grown revenue a total of 48%, and earnings per share have more than doubled. Much of that growth has come from surging GPU demand for data centers and PC gaming. Check out some numbers released in the most recent quarter. 

Segment Revenue (TTM) Change (YOY)
Gaming $4,805 million 58%
Data center $1,361 million 188%
Total revenue $8,344 million 53%

DATA SOURCE: Q2 FISCAL 2018 EARNINGS PRESENTATION. YOY = year over year. TTM = trailing 12 months.

Gaming is the largest segment, making up 58% of NVIDIA's revenue over the past 12 months. Last year, NVIDIA introduced its new Pascal-based GPUs for PC gamers, which kicked off a new upgrade cycle for gamers. This momentum has carried over to this year, with gaming revenue up 50% so far in fiscal 2018. Archrival Advanced Micro Devices (NASDAQ:AMD) has made some gains recently, but NVIDIA is still comfortably in the lead with about 70% share of the discrete graphics market.

In the data center market, NVIDIA has been working with the most well-known tech giants in the world, including Amazon, Facebook, and Microsoft. Recently, NVIDIA announced that Chinese tech giants Baidu, Alibaba Group Holding, and Tencent Holdings are upgrading their Pascal GPUs for data centers to the new Volta GPUs, which NVIDIA introduced over the summer.

Powering self-driving cars

NVIDIA also has an impressive roster of partnerships in the self-driving car market. Toyota Motor, Audi, Tesla, Baidu, and ZF (Europe's top trucking supplier) are using NVIDIA's DRIVE PX self-driving car technology to put a driverless car on the road within the next five years. In addition, 145 start-ups around the world are using DRIVE PX for development of other essential driverless car technologies, such as HD mapping, driverless car simulations, and self-driving passenger shuttles. Check out some numbers released in the most recent quarter.

Segment Revenue (TTM) Change (YOY)
Automotive $537 million 33%

DATA SOURCE: Q2 FISCAL 2018 EARNINGS PRESENTATION. YOY = year over year. TTM = trailing 12 months.

But these partnerships do not guarantee NVIDIA's future growth. The chip industry is hyper-competitive and NVIDIA's major rivals -- Intel and AMD -- have their own partnerships, but NVIDIA has got something else.

Laser-focused on graphics technology

An important difference between NVIDIA, Intel, and AMD is that NVIDIA is the only one that focuses exclusively on the GPU. There are major advantages for NVIDIA in being able to plow back its annual profits into just GPU technology, whereas its competitors have to divide investment between developing central processing units (CPUs) in addition to GPU technology.

NVIDIA was established to focus solely on graphics technology. CEO Jensen Huang founded the company in 1993 (after working at AMD). The company has played a vital role in growing the PC gaming market ever since, in which NVIDIA essentially created the market for gaming graphics cards, having invented the GPU in 1999. It also helps NVIDIA's cause that Huang has his interests aligned with shareholders, with a $4 billion personal stake in the stock, representing about 4% of the company's shares.

In recent years, while AMD was trying to figure out how to regain share in the CPU market against Intel, NVIDIA was busy at work developing new GPU offerings to power the new age of computing. This consistent focus on the GPU positioned NVIDIA ahead of its rivals for the current surge in demand for GPU-powered data centers and self-driving cars.

Gives excess cash back to shareholders

The company's remarkable growth over the last few years has left it cash-rich, with $5.8 billion on the balance sheet as of June 30, 2017. And management has been sharing the dough with shareholders. Over the last three and a half years, NVIDIA distributed 88% of its cumulative free cash flow to shareholders in the form of dividends and share repurchases. It's impressive NVIDIA has been able to do this while maintaining a sound balance sheet and investing for future growth.

The stock is not cheap, trading at 49 times trailing-12-month earnings as of this writing, compared to the P/E average of 23.5 for the industry. But NVIDIA has a sizable market opportunity across its business segments, so it could still be a good investment from here. Keep in mind, though, that NVIDIA will have to maintain high growth rates in order to justify its current stock price.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. John Ballard owns shares of Nvidia. The Motley Fool owns shares of and recommends AMZN, BIDU, FB, Nvidia, and TSLA. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.