There's no denying that Nvidia (NVDA -1.81%) has become the poster child for artificial intelligence (AI). Its chips have become the industry standard for creating and running AI models, which has kicked its stock into overdrive, soaring roughly 500% since the start of 2023.

One Wall Street analyst believes this is just the beginning.

The letters AI over an uneven surface representing a deep learning neural network.

Image source: Getty Images.

Profiting from the AI gold rush

Cantor Fitzgerald analyst C.J. Muse boosted his price target to $1,200 while maintaining a buy rating on Nvidia stock. This represents gains of almost 40% compared to the stock's closing price on Monday. The analyst believes investors are underestimating the company's software business, which has already achieved a $1 billion run rate annually and is "only in the first inning."

The analyst further suggests generative AI will largely run in data centers, which could be a "$500 billion business for Nvidia," pushing earnings per share (EPS) to $35 next year.

The road to $1,200

The analyst could be on to something. Just last month, CEO Jensen Huang laid out the opportunity:

There's about a trillion dollars' worth of installed base of data centers. Over the course of the next four or five years, we'll have $2 trillion worth of data centers that will be powering [AI] software around the world.

This is contingent on the continued adoption of generative AI, but most market commentators believe it's still early days. Data centers will need to increase their capabilities in order to keep up with the greater computational demands required by AI. Nvidia dominates the data center market with an estimated 95% share. Furthermore, Nvidia is the gold standard for machine learning -- an established branch of AI -- with a 95% share of that market.

All the pieces are in place for Nvidia to maintain its dominance. Furthermore, if Nvidia earns $35 per share next year, a stock price of $1,200 works out to a price-to-earnings (PE) ratio of 34, so the stock would be a steal at its current price.