The realistic depiction of characters and scenery in video games is taken for granted, but it wasn't always that way. Before the introduction of modern graphics processing units (GPUs), images were both boxy and grainy. Nvidia's (NVDA 4.35%) groundbreaking video rendering technology, introduced in the late 1990s was -- for lack of a better term -- a game changer. And the rest, as they say, is history.
From those humble beginnings, Nvidia stock has soared a mind-boggling 105,772%, making it one of the best-performing stocks over the past 30 years. That means a $10,000 investment at its 1999 IPO would be worth more than $10.8 million today.
Yet even investors who saw the writing on the wall much later have been richly rewarded. A similar $10,000 investment in early 2013 would have resulted in 8,615% gains, worth more than $871,000 today.
Image source: Getty Images.
Given the stratospheric gains the stock generated, investors might be tempted to think that Nvidia's best days are behind it. However, like so many successful companies, Nvidia pivoted to embrace multiple new products and markets, suggesting the best is likely yet to come for Nvidia.
So. Many. Applications.
Just to be clear, Nvidia's video game segment still represents a large chunk of Nvidia's revenue -- and it's a market the company dominates, with a commanding 85% of the discrete desktop GPU market. But Nvidia has expanded its semiconductor technology to embrace a number of other market opportunities -- each of which represents a massive opportunity for growth.
One of the biggest potential drivers is the ongoing adoption of cloud computing. All the major cloud providers, including Alphabet's Google Cloud, Amazon Web Services (AWS), and Microsoft Azure, rely on Nvidia's processors and accelerators to power their cloud services, as do Alibaba Cloud, Baidu Cloud, and Tencent Cloud.
Nvidia's semiconductors also became the gold standard for a number of compute-intensive operations, including high-performance computing (HPC) and artificial intelligence (AI), which represents another compelling opportunity. At the company's recent GPU Technology Conference, Nvidia rolled out a host of hardware that makes it easier for enterprises of all sizes to access AI technology.
One of the biggest announcements was for DGX Cloud, which can provide AI-as-a-service to any business with access to the internet. Nvidia also debuted a number of inference platforms that will help developers quickly ramp up generative AI applications, like those responsible for OpenAI's ChatGPT, which has captured the public imagination.
There are a number of other opportunities in new verticals that are still in their infancy. For example, at this stage, it's unclear how big the metaverse -- or "omniverse," as Nvidia calls it -- could be, but the company estimates its opportunity in the space at roughly $150 billion.
Similarly, no one yet knows where the self-driving car market will go from here now that the initial hype has died down. Last year, Nvidia announced it had secured design wins resulting in an automotive pipeline that exceeded $11 billion, but the company estimates the total opportunity at $300 billion.
In all, Nvidia estimates its total addressable market at $1 trillion. While it's customary to take those estimates with a grain of salt, it does help illustrate the magnitude of the opportunity ahead.
Worth every penny
With this multipronged opportunity as a backdrop, it's worth noting that Nvidia has never been cheap, and it continues to trade at lofty heights. The stock currently sells for 14 times next year's sales, but that valuation can't be viewed in a vacuum. Even in the face of macroeconomic headwinds, analysts' consensus estimates call for Nvidia to grow revenue by 34% this year and 32% in 2024. But Wall Street has frequently underestimated the company's robust growth, so if history is any guide, the estimates could be conservative.
Given Nvidia's strong positions in the gaming and data center markets and multiple catalysts -- including AI -- fueling additional growth, its rich valuation seems pretty reasonable, given its massive opportunity.
