Nvidia's (NVDA -0.44%) stunning stock rally is not showing any signs of slowing down. Shares of the graphics card specialist have shot up 78% in 2024 so far, and that's not surprising considering the terrific fiscal fourth-quarter 2024 report the company delivered in February.
The semiconductor bellwether's results crushed estimates and its guidance exceeded expectations, suggesting that its artificial intelligence (AI)-powered growth is here to stay. However, investors who haven't bought this stock yet, or are thinking of adding more Nvidia shares to their portfolio, may be wondering if it is a good idea to buy it following the stunning gains it has clocked in 2024.
Let's examine whether Nvidia stock is worth buying right now.
Why Nvidia's red-hot growth is here to stay
Nvidia stock's rapid rise in the past year has led some on Wall Street to express concerns that it may be in a bubble. However, investors shouldn't forget that the shares' outstanding gains have been backed by solid growth in revenue and earnings.
It finished fiscal 2024 with $60.9 billion in revenue, a 126% increase over the previous year. Earnings rose at an even faster pace of 288% to $12.96 per share, driven by the low manufacturing costs and high prices of Nvidia's popular H100 graphics processing unit (GPU) that's used for training large language models.
Nvidia is anticipating $24 billion in revenue in the first quarter of fiscal 2025 at the midpoint. That would be a 233% increase over the prior year. For the full year, analysts are expecting Nvidia to deliver just over $111 billion in revenue, which would be an 82% jump over the previous year.
However, Nvidia management's estimate that its total addressable market opportunity could hit $1 trillion in the long run suggests that its business still has a lot of room to run higher. Of that $1 trillion end-market opportunity, the company sees $100 billion coming from the gaming business and $300 billion from the data center segment. I'll focus this discussion on these two segments for the sake of brevity.
The gaming business has multiple catalysts
Nvidia's gaming segment generated $10.4 billion in revenue in fiscal 2024, an increase of 15% year over year. There are a few impressive catalysts in gaming that explain why Nvidia sees a $100 billion market opportunity here.
The first is the need for gaming hardware such as discrete GPUs. Market research firm TechNavio predicts that the gaming GPU market could clock an annual growth rate of more than 16% between 2022 and 2027, adding incremental revenue of just over $30 billion during this period. Nvidia controls 80% of the discrete GPU market, according to Jon Peddie Research, which puts the company in a solid position to corner a large chunk of this incremental revenue opportunity.
The second catalyst for Nvidia's discrete GPUs will be the rapid adoption of AI PCs. That's because advanced AI PCs are expected to be powered by dedicated GPUs that Nvidia sells so that they can run AI workloads locally. Nvidia is already offering AI-focused PC graphics cards, and its early move into this nascent market could pave the way for solid growth in this segment.
Meanwhile, cloud gaming could open up another opportunity for Nvidia. As per third-party estimates, the cloud gaming market was worth just $5 billion in 2023. However, it is predicted to generate annual revenue of $143 billion in 2032. Nvidia's GeForce Now cloud gaming service ended 2023 with an estimated 9 million users, giving it a market share of 30%.
If Nvidia continues to hold onto its share of this potentially lucrative market in the long run, it could see a massive jump in gaming revenue. All of this indicates that the company's addressable opportunity within gaming is indeed sizable and its dominant presence in this market should lead to substantial growth in revenue from last year's levels.
Nvidia is just getting started in this $300 billion market
Nvidia's data center business generated a record $47.5 billion in revenue in fiscal 2024, increasing an impressive 217% year over year. Just like the gaming segment, Nvidia enjoys a terrific market share in this niche as well, which means that it is on pole position to make the most of the $300 billion addressable opportunity it sees here.
Wells Fargo analysts claim that Nvidia's share of the data center GPU market stands at a whopping 98%. Even if that may seem a bit optimistic, a closer look at how Nvidia's nearest data center GPU rival is faring will make it clear just how dominant the company is in this space. Advanced Micro Devices is expecting at least $3.5 billion in data center GPU sales this year, while Nvidia generated more than 10 times the revenue from this segment in the previous fiscal year.
More importantly, Nvidia is significantly stepping up its game in data center GPUs with its upcoming Blackwell processors. The company claims that its next-generation data center processors are going to be at least 2.5 times more powerful than the current-generation Hopper offering in terms of computing power. Given that the upcoming chips are expected to be priced competitively when compared to the existing flagship H100 processor (in a range of $30,000 to $40,000), they are likely to help Nvidia maintain its strong position in this lucrative market.
All of this explains why Japanese investment bank Mizuho expects Nvidia's AI revenue to jump to a whopping $280 billion in 2027. As such, there is a good chance that it will be able to corner a bigger share of the $1 trillion revenue opportunity it claims to be sitting on. That's the reason why it is still a good time for investors to buy this high-flying AI stock. Plus, Nvidia shares are trading at an attractive 35 times forward earnings right now, which is a discount to their five-year average forward earnings multiple of 39.
