Nvidia's (NVDA 0.03%) data center business grew at an eye-popping pace in the previous fiscal year. The company dominates the market for artificial intelligence (AI) graphics cards, which are being deployed in huge numbers by major cloud computing and AI companies.
Data center revenue jumped a whopping 217% in fiscal 2024 (ended Jan. 28, 2024) to $47.5 billion. If you're wondering how much room Nvidia's data center business has to run going forward, analyst Vijay Rakesh of Japanese investment bank Mizuho recently explained why he believes this segment's red-hot growth is far from over.
Nvidia's data center revenue could multiply from here
According to Mizuho, Nvidia's data center revenue in the current fiscal year could jump 87% to about $89 billion. More importantly, Rakesh predicts Nvidia's data center revenue could jump to $280 billion by 2027 (which will coincide with the bulk of the company's fiscal 2028).
That suggests Nvidia's data center revenue could increase at an annual rate of 56% over the next four years, and there is a good chance it could indeed hit that mark.
This impressive growth will be driven by the ramp-up of Nvidia's new chips. The company is set to launch the H200, B100, and B200 AI chips in 2024 and 2025. Customers are already lined up to get their hands on these processors.
The H200, for instance, will be available from the current quarter. Companies like Amazon, Microsoft, Google, and Oracle are expected to launch cloud instances powered by these chips this year, according to Nvidia. Meanwhile, these cloud computing providers have also expressed interest in Nvidia's next-generation Blackwell AI processors, which the company claims are set to deliver huge performance and efficiency upgrades over the Hopper architecture it launched a couple years ago.
The Blackwell products should be available "starting later this year," and the company claims "Amazon Web Services, Dell Technologies, Google, Meta, Microsoft, OpenAI, Oracle, Tesla and xAI" are among the many companies expected to adopt this platform. That wouldn't be surprising as Nvidia is promising its Blackwell platform can allow organizations to "build and run real-time generative AI on trillion-parameter large language models at up to 25x less cost and energy consumption than its predecessor."
With the likes of Microsoft reportedly looking to spend a humongous $100 billion on building massive AI-focused data centers, it is easy to see why Nvidia is expecting robust demand for its upcoming offerings. Management explained on the latest earnings call that it expects "next-generation products to be supply constrained as demand far exceeds supply."
Nvidia has been bolstering its supply chain with support from its foundry partner TSMC. The waiting time of its current-generation flagship, the H100, has dropped to 3 to 4 months from the earlier waiting period of 8 to 11 months. With TSMC aiming to at least double the packaging capacity of its advanced chips this year, followed by further expansion in 2025, the supply of Nvidia's next-generation chips should continue to improve.
As such, Nvidia could live up to Mizuho's prediction for $280 billion in data center revenue in 2027. It is worth noting Rakesh expects the overall AI data center market to generate $400 billion in revenue by that year, which means Nvidia would control 70% of the market, down from its current share of more than 90%.
How much upside can the stock deliver thanks to the data center boom?
Nvidia generated $13.1 billion of revenue from its other segments (gaming, professional visualization, and automotive) last year. Assuming these other segments see zero growth and deliver the same amount of revenue in fiscal 2028, Nvidia's top line could still reach $293 billion in four years based on Mizuho's outlook.
The stock is currently trading at 37 times sales, a premium to its five-year average sales multiple of 18, thanks to the stunning growth it has delivered in the past year. Assuming Nvidia trades at even 15 times sales in four years, its market cap would increase to $4.4 trillion based on the above revenue outlook, doubling from its current level.
But Nvidia's other segments are not stagnant. The company is growing at a nice pace in the gaming market, which presents another solid growth opportunity thanks to AI. So it could even exceed the projections outlined above and deliver stronger upside for investors. All in all, Nvidia's data center supremacy suggests the stock is built to outperform the market long term, making it a top AI stock to buy even after the stellar gains it has clocked in the past year.
