The last three months have been terrible for Nvidia (NVDA 3.71%) investors as the graphics cards specialist has shed nearly 23% of its market capitalization despite reporting solid quarterly results last month.
The stock market correction has weighed heavily on shares of Nvidia, bringing the company's market cap down to $531 billion as of this writing from just over $800 billion in December 2021. So, Nvidia isn't as close to the trillion-dollar market cap milestone as it was three months ago. But can the tech giant regain its mojo and become a trillion-dollar company by 2025? Let's find out.
NVDA Market Cap data by YCharts.
Nvidia's growth isn't slowing down
Nvidia stock may have taken a beating over the past three months, but the company's fiscal 2022 results that were released on Feb. 16 make it clear that its growth isn't slowing down. The company finished the fiscal year with $26.9 billion in revenue, an increase of 61% over the prior year. Its adjusted net income shot up 79% to $11.2 billion, or $4.44 per share.
Nvidia grew at a faster pace in fiscal 2022 as compared to the 53% revenue growth it had reported in fiscal 2021. Its bottom-line growth also accelerated last year as compared to fiscal 2021's growth of 75%. It is worth noting that Nvidia's top line has increased at a compound annual growth rate (CAGR) of 32% over the past three fiscal years. Its adjusted net income has increased at a CAGR of nearly 40% over the same period.
Nvidia's guidance for the first quarter of fiscal 2023 suggests that the company won't be taking its foot off the gas. It has guided for $8.1 billion in revenue for the ongoing quarter, an increase of 43% over the prior year. The chipmaker's full-year revenue is expected to increase 29%, as per analysts' estimates, while earnings are expected to jump 26%.
However, Nvidia's first-quarter guidance indicates that it could clock a much faster pace of growth this year and beyond.
The high pace of growth is here to stay
The gaming business is the biggest reason why Nvidia seems built for solid growth. The gaming business produced a record $12.4 billion in revenue last fiscal year and recorded 61% year-over-year growth. Nvidia's dominant share of the discrete GPU (graphics processing unit) market is the key reason behind this terrific growth.
According to Jon Peddie Research, Nvidia held 77% of the discrete GPU market in the fourth quarter of 2021. Nvidia's discrete GPU shipments increased 27.7% year over year during the quarter thanks to its robust market share. What's more, Nvidia is enjoying a stronger average selling price that's reportedly 15% higher than the prior-generation Turing cards and up to 80% higher than the Pascal generation cards that were launched in 2016.
Image source: Getty Images.
With only 15% of the installed base using Nvidia's latest generation Ampere cards, as per analyst estimates, there is a lot of room for growth in the company's gaming revenue. It is also worth noting that sales of discrete GPUs are expected to jump to $54 billion by 2025 as compared to $23.6 billion in 2020, paving the way for substantial incremental growth at Nvidia thanks to its strong market share in this space.
The data center business is another key catalyst for Nvidia. The company's data center revenue was up 58% in fiscal 2022 to a record $10.6 billion, accounting for 39% of its total revenue. Just like the gaming business, data centers also present a secular growth opportunity for Nvidia. That's because the usage of GPUs in data centers is increasing at a rapid pace thanks to their ability to tackle heavy workloads related to artificial intelligence, machine learning, and high-performance computing.
The chipmaker will also expand its wings in the data center space with the launch of a new CPU (central processing unit) next year. This will strengthen the company's position in the global data center accelerator market that's estimated to clock an annual growth rate of 25% through 2028 and exceed $25 billion in revenue.
Will it hit a trillion-dollar market cap in three years?
The impressive growth drivers discussed above indicate why analysts expect Nvidia's earnings to grow at an annual rate of 30% over the next five years. Assuming this rate of earnings growth for the next three fiscal years, Nvidia's earnings at the end of fiscal 2025 would increase to $9.75 per share.
Nvidia stock has a five-year average forward earnings multiple of 40. Assuming a similar multiple after three years would lead to a stock price of $390, which would translate into an 81% upside from current levels. Nvidia now has a market cap of $530 billion, and an 81% appreciation over that would lead to a market cap of nearly $960 billion.
So, Nvidia stock could get close to a $1 trillion market cap by 2025 because of the solid catalysts discussed above, making it an ideal bet for investors looking to buy a growth stock following its recent pullback.
