Nvidia's (NVDA +1.73%) shares were cut in half in 2022. Like many tech stocks, the semiconductor titan saw its growth slowed by inflation concerns and fears of a potential recession, which drove consumers and businesses to pare back their spending on technology.
But while the economic environment is likely to remain challenging in the coming months, Nvidia's long-term prospects are tantalizing. Here's why the chipmaker's stock price appears set to rebound in the years ahead.
NASDAQ: NVDA
Key Data Points
1. A massive market opportunity
Nvidia is a leader in accelerated computing. Its graphics processing units (GPUs) excel at rapidly processing large amounts of data. It combines these high-performance chips with specialized software to further speed up applications. Nvidia's accelerated computing systems, in turn, are powering some of the biggest trends in tech, such as cloud computing, artificial intelligence (AI), and the metaverse.
Nvidia's technology helps its customers better process and filter their data. It improves their image rendering and speech recognition capabilities, as well as their product recommendation engines. It can also be used to create virtual replicas of real-world items, thereby allowing customers to run simulations quickly and cost-effectively.
With so many use cases, Nvidia's leadership pegs its total addressable market at a staggering $1 trillion dollars. With $28.6 billion in revenue over the trailing 12 months, the tech giant still has tremendous room for long-term growth.
2. Cloud-fueled gains
Nvidia's data center business represents one of its largest expansion opportunities. All the largest cloud infrastructure providers deploy Nvidia's chips in their data centers. With more businesses shifting their processes to the cloud every day, due in part to cloud computing's cost, security, and reliability benefits, demand for Nvidia's chips should rise steadily over time.
Nvidia's data center operations are already huge by most standards, with more than $10 billion in revenue in fiscal 2022, which ended on Jan. 30. They're also growing rapidly. Nvidia's data center sales surged 31% year over year to $3.8 billion in its fiscal third quarter ended Oct. 30.
With the global cloud computing market set to surpass $1.2 trillion by 2027, up from $545.8 billion in 2022, according to research firm MarketsandMarkets, Nvidia's booming data center business is poised to become even larger in the coming years.
3. The gaming market should rebound
Nvidia's gaming business has stalled in recent quarters, coinciding with a downturn in the personal computer (PC) market. Yet these issues are likely to prove temporary.
The gaming market has grown to become an enormous global industry. There are now more than 3 billion gamers across the world, up from 2.3 billion in 2017, according to Nvidia. This figure is likely to continue to rise in the coming decade as internet penetration rates increase and poverty rates decline.
Moreover, each successive generation tends to have a greater percentage of gamers, who also spend more time playing games. The gap has widened significantly over time, with members of Gen Z playing for over seven hours per week on average, compared to two hours and 30 minutes for Baby Boomers.
Image source: Nvidia.
Partnerships with leading game console makers, such as the one Nvidia struck with Nintendo to supply chips for its popular Switch gaming system, have positioned the chipmaker to profit handsomely from the gaming industry's growth. And with Nintendo rumored to be gearing up to launch a new Switch device as early as the first half of 2023, Nvidia's gaming-related sales could be about to receive a boost.
Nvidia is also the dominant provider of high-end graphics cards for the PC gaming market, with an 88% share, according to Jon Peddie Research. Its ray tracing technology, which can be used to produce incredible visual effects in games, is the most advanced on the market, making Nvidia's chips popular among developers and gamers alike. Thus, any upturn in the PC gaming market -- which, based on long-term trends, is likely to occur in the near future -- should also bolster Nvidia's sales and profits.
