Jensen Huang, Chris Malachowsky, and Curtis Priem founded Nvidia (NVDA +1.13%) in 1993 as a graphics card company to supply chips for personal computers (PCs) which were gaining traction as gaming and multimedia devices at that time. It is safe to say that the semiconductor giant has evolved quite a bit over the 20 years that followed.
Nvidia's graphics cards are now employed in a variety of areas, including PCs, workstations, supercomputers, data centers, vehicles, artificial intelligence applications, and medical applications, among others. The chipmaker's growth in multiple verticals resulted in terrific gains since it made its stock market debut nearly 24 years ago on Jan. 22, 1999.
A $1,000 investment in Nvidia stock at that time is now worth around $364,000, assuming the dividends were reinvested. That translates into an impressive annual return of nearly 28% since the company went public.
NASDAQ: NVDA
Key Data Points
That level of return didn't happen for Nvidia in 2022, however, as shares lost half of their value amid slowing growth on account of weak PC demand and restrictions on the sales of data center chips to China. The chipmaker now trades nearly 51% off its 52-week highs.
But patient investors who have been holding Nvidia stock for a long time should consider sticking with the semiconductor giant because there are signs it could return to its impressive past performance. Savvy investors with an appetite for risk might also want to consider buying Nvidia following its sharp drop. Let's look at the reasons why.
Data center demand remains a key growth driver for Nvidia
Nvidia reported explosive growth in the data center business in recent years. In fact, the data center is now the company's largest segment and produced 64% of its total revenue in the last reported quarter. There are two reasons for this.
The first is the growing adoption of graphics cards in data centers to tackle resource-intensive workloads. More specifically, graphics processing units (GPUs) play a critical role in data centers for enabling artificial intelligence (AI) and machine learning (ML) workloads that require higher computing power, as they can perform multiple operations in parallel.
It is estimated that the data center GPU market could generate $54 billion in revenue by 2027, clocking annual growth of 32% over the next five years. Even better, the overall data center accelerator space (which includes GPUs) is expected to post annual growth of 23% through the end of the decade. With Nvidia set to expand its presence in this area with the addition of a new chip in 2023, the company's data center business should continue to thrive over the long run.
The Omniverse could become the next multibillion-dollar play
Nvidia has expanded the use of its graphics cards into multiple applications over the years, which allowed the company to substantially grow its business and deliver terrific returns to investors. It looks like the company's Omniverse platform could become its next big play given the huge opportunity at hand.
Nvidia launched its Omniverse cloud platform in September 2022. The platform can be used by multiple industries and across various applications for designing and collaborating on 3D workflows. Nvidia CEO Jensen Huang points out that the Omniverse cloud platform can help "design, build, and operate virtual worlds and digital twins."
The good part is that Nvidia's Omniverse solutions are already gaining traction. The likes of Siemens, market behemoth WPP, electric vehicle start-up Rimac, home improvement retailer Lowe's, and telecommunications company Charter Communications are some of the names that have adopted Nvidia's Omniverse solutions to create digital twins. These digital representations of prototypes or actual real-world products, systems, or processes can help companies develop simulations, testing, monitoring, maintenance, and other functions more efficiently.
The company's growing traction in digital twins could unlock a terrific opportunity for Nvidia in the long run. That's because the size of the digital twin market is expected to grow at a compound annual rate of 25% over the next decade and generate annual revenue of $90 billion in 2032.
The automotive business could unlock a $300 billion opportunity
Nvidia sees a $300 billion total addressable market in the automotive segment in the long run, driven by the rising levels of automation in cars, as well as the increasing adoption of electric vehicles. Vehicles nowadays are being equipped with multiple cameras with high resolution and they are also carrying several sensors to capture huge amounts of data that could then be used for automated driving functions.
This is where Nvidia's Drive automotive system steps in to provide computing solutions for automakers looking to integrate self-driving functions or to enable other features such as virtual cockpits. The good part is that Nvidia's automotive business has already built an impressive design win pipeline that was worth $11 billion in March 2022.
That healthy pipeline is now translating into impressive growth because automakers and component suppliers who chose Nvidia's offerings are now bringing products powered by the chipmaker into production. This explains why the company's automotive revenue was up 86% year over year last quarter to $251 million. Though it is still a small component of Nvidia's overall business, automotive is likely to play a bigger role in the company's long-term growth given the huge design win pipeline and its numerous partnerships in this space.
In all, it can be said that Nvidia's troubles shouldn't last forever due to the many impressive catalysts discussed above. So, investors should consider holding on to this semiconductor stock despite a poor performance in 2022 because it can stage a comeback in the long run and replicate the healthy upside it has delivered since going public.
