Nvidia (NVDA +2.78%) stock has been an outstanding performer on the market over the past five years, surging 582% and beating the S&P 500's returns of 58% by a handsome margin.
This means Nvidia has turned a $100 investment into nearly $700 as of this writing. But can this high-flying semiconductor stock sustain its impressive momentum over the next five years and deliver more gains to investors? Let's find out.
NASDAQ: NVDA
Key Data Points
Nvidia could clock faster growth over the next five years thanks to new catalysts
Nvidia reported annual revenue of $27 billion for fiscal year 2023, which ended on Jan. 29, 2023. For comparison, the chipmaker's revenue at the end of fiscal 2018 stood at $9.7 billion, which means that Nvidia's revenue has increased at a compound annual growth rate (CAGR) of almost 23% during these five years.
The chipmaker's growth could accelerate over the next five years as the company now has new, stronger growth drivers compared to where it was at the end of fiscal 2018. For example, gaming was Nvidia's biggest source of revenue in fiscal 2018, producing 57% of the company's revenue with $5.5 billion in sales. The segment's revenue increased 36% during that fiscal year thanks to the healthy demand for graphics cards used in gaming PCs (personal computers).
Nvidia's data center business was just taking off at that time, recording 133% revenue growth in fiscal 2018 to $1.9 billion and accounting for a fifth of the company's top line. Things changed remarkably by the end of fiscal 2023, however, as the data center business produced 55% of Nvidia's top line, growing 41% year over year to a record $15 billion. The gaming business, meanwhile, witnessed a 27% decline in revenue last fiscal year to $9 billion, accounting for a third of the company's top line.
So the company's data center business has multiplied nearly eight times in the past five years, while the gaming business has recorded 63% growth over the same period. A similar trend is likely to play out over the next five years as well since the demand for data center graphics processing units (GPUs) is expected to grow at a far greater pace than the demand for gaming graphics cards.
Grand View Research estimates that the market for data center accelerators is expected to clock 23.5% annual growth from 2023 through 2030. That's higher than the 15% annual growth that the gaming GPU market is forecasted to deliver through 2028, according to Mordor Intelligence.
The reason why the data center GPU market is expected to grow at a faster pace than gaming GPUs is because of the proliferation of artificial intelligence (AI). The advent of generative AI applications has created massive demand for the GPUs that Nvidia sells. It is worth noting that each data center GPU from Nvidia is priced from $10,000 and could go up to $40,000, and the company is reportedly looking to ramp up its production this year -- a move that could boost its revenue by an additional $9 billion to $20 billion.
Not surprisingly, Nvidia's revenue is expected to grow nicely in the ongoing fiscal 2024 and beyond.
NVDA Revenue Estimates for Current Fiscal Year data by YCharts
How much upside can investors expect over the next five years?
The chart above suggests that Nvidia's revenue in fiscal 2026 could hit $65 billion. That translates into a CAGR of almost 35% over three years. Assuming Nvidia's revenue increases at 30% a year in fiscal years 2027 and 2028, its revenue after five years could hit $110 billion. That would be more than four times the revenue Nvidia generated in fiscal 2023. For comparison, the company's revenue grew just under 3x in the past five fiscal years.
This faster growth in Nvidia's revenue over the next five years should translate into a healthy stock price upside as well. The tech giant currently sports a price-to-sales ratio of nearly 41 thanks to its AI-driven surge. That's way higher than the company's five-year average sales multiple of 18.4. Assuming Nvidia's sales multiple does come down to 18 after five years and the company's revenue hits $110 billion, its market cap could approach $2 trillion.
That would be almost double Nvidia's current market cap, suggesting that this high-flying chipmaker is primed for tremendous upside over the next five years.
