Nvidia's (NVDA +1.67%) artificial intelligence (AI)-fueled rally was put to the test on the stock market on Feb. 21 when it released its results for the fourth quarter of fiscal 2024 (which ended on Jan. 28, 2024). It's safe to say that the semiconductor bellwether passed with flying colors as the demand for its graphics cards and processors remains robust.
The stakes were high as Nvidia's shares have shot up an enormous 240% in the past year, so it needed to convincingly beat Wall Street's expectations and prove that AI is more than just hype. A closer look at the results of other big tech companies leading up to Nvidia's quarterly report indicated that it was well placed to crush analysts' expectations.
Let's see how Nvidia fared last quarter and check how much upside investors can expect from this AI stock over the next three years.
Nvidia's stunning AI-driven growth is here to stay
Nvidia reported record fiscal fourth-quarter revenue of $22.1 billion, a massive increase of 265% from the prior-year period and well ahead of the company's original guidance of $20 billion. What's more, the company's Q4 revenue accelerated at a faster pace than the 206% year-over-year jump it recorded in the fiscal third quarter, indicating that the demand for its chips is increasing. Meanwhile, the company's non-GAAP (adjusted) earnings shot up a whopping 486% year over year to $5.16 per share.
NASDAQ: NVDA
Key Data Points
Consensus estimates were anticipating Nvidia would deliver $4.60 per share in adjusted earnings on revenue of $20.4 billion. The company exceeded expectations by a mile. Also, the company's full-year revenue was up an impressive 126% year over year to $61 billion, while earnings shot up 288% to $12.96 per share. Nvidia witnessed a substantial jump in its non-GAAP gross margin to 73.8% last fiscal year as compared to 59.2% in fiscal 2023, which is a testament to the outstanding pricing power Nvidia enjoys in AI chips.
Even better, the company's guidance for the first quarter of fiscal 2025 suggests that its tremendous growth is here to stay. Nvidia anticipates $24 billion in revenue at the midpoint of its guidance range, which means that it expects its top line to more than triple from the prior-year period's figure of $7.2 billion. Wall Street would have been satisfied with fiscal Q1 revenue of $21.9 billion.
It predicts that the non-GAAP gross margin will land between 76.3% and 77%. That would be a big jump as compared to the year-ago period's reading of 66.8%, suggesting that Nvidia's bottom line is set for robust growth once again.
The reason why Nvidia is all set to sustain its stunning growth is simple -- the booming demand for its AI chips that are deployed in data centers. Nvidia CEO Jensen Huang pointed out in the company's earnings release that "accelerated computing and generative AI have hit the tipping point." Third-party estimates indicate the same, with Future Market Insights predicting that the AI chip market could grow tenfold in revenue over the next decade and generate $287 billion in revenue in 2034.
Nvidia is already making the most of this opportunity. Its data center revenue shot up 409% year over year last quarter to $18.4 billion as the demand for its flagship H100 AI GPU (graphics processing unit) remained solid. For the full year, Nvidia's data center revenue reached a record $47.5 billion, an increase of 217% over the prior year. This segment produced 79% of the company's top line last year.
Based on Gartner's estimate that the AI chip market generated $53 billion in revenue last year, Nvidia's full-year data center revenue indicates that it controlled nearly 90% of this space in 2023. The research firm estimates that global AI chip revenue could hit almost $120 billion in 2027. Assuming Nvidia can maintain its dominance in this market -- which it seems capable of thanks to an aggressive product roadmap -- its data center revenue could increase to $108 billion in the next three years.
Throw in the other catalysts that Nvidia is sitting on, such as the adoption of generative AI in personal computers (PCs) that is fueling the growth of its gaming business, and it is easy to see why analysts have significantly raised their growth forecasts and are expecting it to sustain its elevated levels of growth going forward.
How much upside can investors expect over the next three years?
Analysts are forecasting Nvidia's revenue to increase 80% in fiscal 2025 to almost $110 billion, followed by further gains in the next two fiscal years.
NVDA Revenue Estimates for Current Fiscal Year data by YCharts.
Nvidia's revenue is expected to touch almost $150 billion in fiscal 2027. That would be nearly 2.5 times the company's revenue in the previous fiscal year. Nvidia is currently trading at 32 times sales, which is significantly higher than its five-year average sales multiple of 18. The premium valuation is justified, considering the company's terrific growth. The company's forward sales multiple of 18, however, is in line with the five-year average.
Assuming Nvidia trades at 18 times sales after three years and hits $150 billion in revenue, its market cap could jump to $2.7 trillion, a jump of 37% from current levels. However, this AI stock is likely to deliver much stronger gains if the market continues to reward it with a premium valuation. So, a sales multiple of 30 could elevate its market cap to $4.5 trillion in three years, which would be more than double the current levels.
That's why investors would do well to continue holding Nvidia stock since it could keep heading higher over the next three years.
