NVIDIA (NVDA -1.62%) stock has been a fantastic investment in recent years and over the long term. For the three-year period through Feb. 28, shares of the graphics-chip maker have returned 169%, and over the past decade, they've returned 1,171%. The S&P 500 has returned 32.6% and 229%, respectively, over these periods.
While this is great for investors who have owned the tech stock for some time, the key thing investors want to know now is where NVIDIA will likely be in the future -- let's say five years from now.
Nobody can predict the future with complete accuracy. However -- even without Nostradamus genes or a trusty crystal ball -- it is possible to make an educated forecast about what NVIDIA's business will look like in 2025.
CEO Jensen Huang will still be leading the company
It seems more likely than not that NVIDIA co-founder and CEO Jensen Huang will still be leading the company in 2025.
In five years, Huang will be 62. So there's a good case to be made that he could retire before 2025 to have more time to enjoy his immense wealth. That said, one only needs to listen to the company's quarterly earnings call to know that this is a guy who just loves his work. As long as he stays healthy, the odds seem in favor of his still being at NVIDIA's helm in five years.
NVIDIA will still be the leading supplier of graphics cards for computer gaming
NVIDIA dominates the market for discrete graphics processing units (GPUs) -- the key component in graphics cards for desktop computer gaming. In the fourth quarter of 2019, the company controlled 68.9% of this market, compared with Advanced Micro Devices' (AMD -1.57%) 31.1%, according to research firm JPR's hot-off-the-presses report. AMD has been gaining ground, however, as it had share of 27.1% in the previous quarter.
That said, there's no good reason to believe that AMD will catch up to NVIDIA within five years. Moreover, while market share is important, it's not the be-all and end-all. NVIDIA is more dominant in the higher-end graphics card market -- and that's a plus since profit margins are usually fatter in the more upscale end of all product categories.
NVIDIA and AMD won't have the discrete GPU market to themselves anymore, however. Last year, chip behemoth Intel (INTC -1.50%) confirmed reports that it planned to enter this space in 2020.
The global gaming market will continue its robust growth
The gaming market has been booming, which NVIDIA management has largely attributed to the phenomenal popularity of esports and the increasing quality of video games. And as the dominant supplier of graphics cards, NVIDIA has naturally benefited from the market's growth. Its gaming revenue has increased from $4.06 billion in fiscal 2017 to $5.52 billion in fiscal 2020. (The company just reported its Q4 and full-year 2020 results two weeks ago; you can read my earnings take here.)
In 2025, the gaming market should be much bigger. Esports continues to rapidly gain more enthusiasts and the quality of video games should improve at an even faster rate. That's largely thanks to NVIDIA's RTX GPUs, which began rolling out in late 2018. Along with possessing artificial intelligence (AI) capabilities, these GPUs enable real-time ray tracing -- a huge industry breakthrough. This technology brings cinematic-quality images to video games and other applications.
The wonderful thing for NVIDIA and its investors is that the company is in the early stages of profiting from both ends: Designers are using its RTX Quadro GPUs in their workstations to design video games with real-time ray tracing, and gamers are upgrading their graphics card to one in the GeForce RTX series to get the full benefit of the more realistic images in these games. (The Quadro sales fall into the company's professional visualization platform.)
NVIDIA's GPUs will still be the gold standard for AI training
Artificial intelligence has been one of the fastest-growing technologies in recent years and that dynamic is widely projected to continue for many years. The specific category of AI that is booming is deep learning (DL), which involves training a machine to make inferences from data in a way similar to how humans do.
NVIDIA is sitting in the catbird seat when it comes to profiting from this humongous growth trend. The company's GPU-based approach to accelerating computing is considered the gold standard for DL training, the first step in the two-step DL process. This statement is extremely likely to hold true in 2025, in my opinion. Of course, investors should watch for signs that competing technologies are gaining traction, and monitor Intel's progress with its entrance into the discrete GPU market.
Moreover, within just the last year or two, NVIDIA has made great progress in the deep-learning inference market, which is still dominated by central processing units (CPUs). Inferencing is the second step in the DL process and involves a machine applying what it's learned in its training to new data. In 2025, it seems probable that NVIDIA will have made even greater inroads into the inference market.
Thanks heavily to the rapid adoption of AI across companies large and small, NVIDIA's data center's revenue has exploded from $97 million in the fourth quarter of fiscal 2016 to $968 million in the fourth quarter of fiscal 2020 -- a 10-fold increase in four years!
The legalization of driverless vehicles will turbocharge its auto platform's growth
In 2025, fully autonomous vehicles should be legal -- or very close to being so -- across the United States. NVIDIA is well positioned to majorly profit from what will be a watershed event in the transportation industry. It's inked partnerships with major players, including Toyota, Mercedes-Benz, Volkswagen, Chinese tech giant Baidu, and ride-hailing leader Uber. In addition, hundreds of car and truck makers and others are developing with the company's autonomous vehicle AI computing platform.
The X factor
NVIDIA is incredibly innovative, so there seems a great chance that the company will introduce at least one major new technology that takes nearly everyone by surprise. This scenario happened with RTX technology, as real-time ray tracing had long been considered the Holy Grail in the computer graphics industry.
And NVIDIA's stock price in 2025?
It's impossible to predict a company's stock price in five years because so many unknowns -- such as possible recessions -- can have a huge influence on the market in general. That said, given the projections made in this article, I feel very comfortable predicting that NVIDIA stock will solidly outperform the market over the next half decade.