Nvidia's (NVDA 0.20%) outstanding surge of 237% in the past year has made it the world's fourth-largest company by market capitalization. The semiconductor giant overtook the likes of Amazon and Alphabet and now sports a market cap of nearly $2 trillion.
Nvidia benefits from the fast-growing demand for AI chips. Its revenue and earnings have grown at a stellar pace in the past few quarters as customers have been queuing up to get their hands on the company's graphics processing units (GPUs) for training large language models -- the foundation for popular generative AI applications such as ChatGPT.
NVDA Revenue (TTM) data by YCharts
The good part is that the demand for AI chips is expected to clock a terrific annual growth rate of 38% through 2032, generating a whopping $383 billion in annual revenue at the end of the forecast period. Given that Nvidia is the leader in this space with an estimated market share of 85%, according to investment bank Raymond James, the chipmaker should continue to record solid growth in 2024 and beyond.
But will that be enough to help Nvidia increase its market cap to $3 trillion? Let's find out.
NASDAQ: NVDA
Key Data Points
Nvidia's stellar growth is here to stay
The robust demand for AI chips supercharged Nvidia's data center business. The company's data center revenue in the recently concluded fiscal year 2024 jumped to $47.5 billion from $15 billion in fiscal 2023. It is worth noting that Nvidia's data center revenue was up 41% in fiscal 2023, which means that this segment grew at a much faster pace last year thanks to AI chip demand.
Morningstar estimates that Nvidia's data center revenue could increase to $60 billion in the current fiscal year, followed by a 23% jump in the next fiscal year. However, Nvidia's consensus revenue estimates for the current and the next fiscal year have been heading higher.
NVDA Revenue Estimates for Current Fiscal Year data by YCharts
That's not surprising, as recent results from cloud service providers who have been buying Nvidia's graphics cards indicate that its customers are set to increase their AI-related spending. Nvidia should deliver stronger growth over the next couple of fiscal years. Another reason Nvidia could outpace analysts' expectations is because of its move into the market for custom AI chips.
The company reportedly held discussions with its cloud customers to develop application-specific integrated circuits (ASICs). A move into this fast-growing custom chip market could unlock a revenue opportunity worth $55 billion for Nvidia and help accelerate its already impressive growth. That could lead to even more stock upside over the next couple of years and boost Nvidia's market cap further.
Can it become a $3 trillion company?
Just like Nvidia's revenue estimates have been raised by analysts, its earnings per share estimates are also getting a boost.
NVDA EPS Estimates for Current Fiscal Year data by YCharts
Nvidia's earnings could jump to $29.24 per share in fiscal 2026 (which mostly coincides with calendar year 2025). That's a nice jump from the earnings of around $20 per share the company was anticipated to deliver earlier. With Nvidia's potential move into a new area such as custom AI chips, the company could end fiscal 2026 with a higher earnings figure.
Assuming Nvidia's earnings jump to $30 per share in the next fiscal year and the company trades at 42 times earnings at that time -- in line with its five-year average forward earnings multiple -- its stock price could increase to $1,260 per share within the next couple of years. That would be a 60% increase from the current level.
Based on Nvidia's current market cap of $1.97 trillion, a 60% jump from here would send its market cap to $3.15 trillion. So there is a solid possibility of Nvidia becoming a $3 trillion company by the end of next year. Investors should consider buying Nvidia right away because it is trading at 38 times forward earnings, a discount to its five-year average forward earnings multiple.
