There's little question that Nvidia (NVDA 0.76%) has been one of the market's star performers in recent years. Over the past three years alone, Nvidia stock has more than tripled -- and that isn't just a recent phenomenon. During the most recent five and 10-year periods, the stock has gained 1,280% and 5,110%, respectively (as of this writing). The stock has grown so quickly in recent years, Nvidia felt compelled to split its shares.
Past performance is no guarantee of future results, but it gives investors a starting point. The question becomes, does Nvidia have what it takes to continue its winning streak or have investors already missed the boat? I won't bury the lede here: I think Nvidia has what it takes to surpass a trillion-dollar market cap by 2025. Here's why.
Nvidia's cutting-edge GeForce RTX 30 series of processors. Image source: Nvidia.
When it comes to gaming, Nvidia has no equal
It's hard to overstate Nvidia's dominance of the gaming space with its cutting-edge graphics processing units (GPUs). The company commands an 81% share of the discrete desktop GPU market and is the processor of choice among hardcore gamers.
The reason? Nvidia pioneered the GPU (in its current form) and continues to spend heavily on research and development (R&D) to create the next generation of state-of-the-art processors. Don't take my word for it. In its fiscal 2022 first quarter (ended May 2, 2021), Nvidia spent $1.15 billion -- more than 20% of its total revenue and 31% of its gross profit -- on R&D. The company is that serious about maintaining its technological advantage.
Nvidia's financial results show that its strategy is sound. The company delivered record gaming revenue of $2.76 billion in Q1, up 106% year over year. Gaming chips represent the lion's share of Nvidia's sales, accounting for 49% of current revenue. History shows that there will be peaks and valleys in demand for gaming chips, but Nvidia's continue to be the most highly sought after.
Nvidia Tesla V100 Data Center GPU. Image source: Nvidia.
Nvidia's head is in the clouds
While processors for gaming represent the bulk of Nvidia's business, the company's data center segment is catching up fast. The GPU's super power is parallel processing -- which allows it to run legions of complex mathematical computations simultaneously. This not only helps render life-like images in video games, but works equally as well routing information to and from a data center at lightning speeds.
Nvidia's GPUs are the unheralded workhorse of the data center, the top choice of the biggest names in cloud computing. Microsoft's Azure Cloud, Alphabet's Google Cloud, and Amazon's AWS all rely on Nvidia GPUs to move data -- as do a host of other top cloud operators.
There's another reason these cloud leaders all use Nvidia chips in their data centers. Researchers discovered that in order to train and run artificial intelligence (AI) systems, they needed the fastest processors available. The sheer number-crunching capabilities of Nvidia GPUs is unmatched, and as AI becomes a staple of cloud computing, Nvidia processors became something of a must-have.
Nvidia's results tell the tale. The company generated record data center revenue of $2.05 billion in the first quarter, up 79% year over year, and accounting for 36% of its total sales.
Nvidia Atlan self-driving system. Image source: Nvidia.
Other growth catalysts
The one-two punch of gaming and cloud computing would be reason enough to invest in Nvidia, but the company has other irons in the fire. Autonomous driving is another technology that requires processing done in the blink of an eye.
Nvidia has partnered with more than 370 companies in the automotive industry to take self-driving technology from the drawing board to mass production. The list includes top-shelf car and truck manufacturers, tier 1 auto suppliers, mobility services, sensor companies, and HD mapping specialists that are collaborating on its Nvidia Drive system. The system combines an open autonomous vehicle computing platform with cutting-edge software that is constantly improving and evolving.
While its auto segment currently represents just 4% of Nvidia's revenue, a breakthrough in self-driving technology could be a major catalyst to drive Nvidia to the next level.
Current market cap -- $480 billion
There are no guarantees that Nvidia, or any company for that matter, has what it takes to achieve the lofty market cap of $1 trillion. With a current market cap of just $480 billion (as of this writing) this semiconductor kingpin is on the verge of scaling the halfway point.
That said, given its rapid revenue growth, industry-leading position -- in not one, but two markets -- and the potential for more to come, Nvidia has all the necessary ingredients to take its place among the most valuable companies on U.S. public markets.
I think it's just a matter of time.
