Shares of Nvidia (NVDA -0.68%) have been red hot on the stock market in 2023, logging gains of 110% already thanks to the massive hype around artificial intelligence (AI) applications.

It is worth noting that Nvidia's terrific gains have come even as the company has been witnessing a steep decline in its revenue and earnings owing to the oversupply of graphics cards used in the personal computer (PC) market. Investors have been betting big on AI to help Nvidia overcome the gaming market's weakness, and it wouldn't be surprising to see the company deliver on that front.

After all, Nvidia is the dominant player in the enterprise GPU (graphics processing unit) market, and its AI-focused cards are reportedly being sold for tens of thousands of dollars. But at the same time, there may be another catalyst in the cards for Nvidia that could help the stock rise further. Let's check it out.

Nvidia is struggling in the gaming business, but there are signs of a turnaround

Gaming is one of Nvidia's key businesses. This segment produced $9 billion in revenue in fiscal 2023, which was a third of the company's top line. However, weak demand for PCs led to a sharp decline in sales of Nvidia's gaming graphics cards, which explains the 27% decline in this segment's revenue last fiscal year. But a closer look at Nvidia's gaming business suggests that it may have hit bottom already.

The semiconductor giant witnessed a 16% quarter-over-quarter jump in gaming revenue in the fourth quarter of fiscal 2023 to $1.83 billion. Nvidia attributed this growth to the healthy demand for its 40-series RTX graphics cards based on the Ada Lovelace architecture, which were launched in October last year. It is worth noting that the RTX 40 cards that Nvidia launched last year were on the expensive side, with the RTX 4080 starting at $899.

Now Nvidia is looking to bring more gamers into its fold with the new additions to the RTX 40 series lineup. The company will soon start selling the RTX 4060 Ti at a starting price of $399. Meanwhile, the $299 RTX 4060 is expected to go on sale in July. The company claims that the RTX 4060 Ti can deliver 2.6x the performance of the two-generation-old RTX 2060, and 1.7 times the performance of the previous generation RTX 3060 at the same price.

The 4060 Ti carries more computing power and consumes less electricity than its predecessors thanks to its updated architecture. As a result, it wouldn't be surprising to see these new cards further improve Nvidia's fortunes in the gaming business, especially considering that a large chunk of its installed base has yet to upgrade to the RTX class of cards.

Nvidia pointed out on its March 2022 investor day that only 29% of its installed base was using an RTX series graphics card. Many gamers were still using older-generation GTX series cards that don't support features such as ray tracing and deep learning super sampling (DLSS), which make games look more realistic and immersive. Given that Nvidia now has more than 400 games that support ray tracing and AI-enabled graphics, one can expect more of its installed base to upgrade to the new generation of cards.

So Nvidia investors can expect a gradual recovery in the company's gaming business, and expect that recovery to deliver healthy long-term growth. It is also worth noting that gamers who are upgrading to Nvidia's RTX series graphics cards are spending $300 more compared to the earlier generation of GTX cards, driving an improvement in the company's average selling price (ASP).

Gaming could drive robust revenue growth in the long run

Nvidia sees a massive long-term revenue opportunity worth $100 billion in the gaming business. So the company hasn't reached even 10% of its potential in this segment, as its fiscal 2023 gaming revenue suggests.

Demand for gaming hardware is expected to pick up from 2024, according to Jon Peddie Research. The firm expects $41.4 billion in spending on PC gaming hardware next year, compared to $37.3 billion in 2023. The figure is expected to head higher in 2025 to $47 billion. Meanwhile, Mordor Intelligence forecasts that the gaming GPU market could clock annual growth of 15% over the next five years.

As Nvidia controls 82% of the market for the discrete GPUs that power gaming PCs, it is in a solid position to take advantage of this secular growth opportunity. At the same time, there is a massive opportunity for the company in the cloud gaming market, which is currently in its early phases of growth. Nvidia is already the dominant player in the cloud gaming space, which could substantially boost the company's revenue.

As such, investors shouldn't discount Nvidia's prospects in the video gaming market, as the company has multiple catalysts here. The company's data center business is already in fine form thanks to the growing demand for AI chips, and a potential recovery in the gaming business could give it an additional boost and help the stock sustain its impressive momentum.

However, investors looking to buy Nvidia stock right now will have to pay a whopping 180 times trailing earnings. While that's expensive, the forward earnings multiple of 69 suggests that terrific earnings growth is in the cards. Analysts are anticipating Nvidia to deliver annual earnings growth of 21% for the next five years, but the sunny prospects of its two largest businesses -- gaming and data center -- could help it clock faster growth and remain a top growth stock in the long run.