Semiconductor giant Nvidia's (NVDA 0.11%) stock has recorded eye-popping gains of nearly 528% in the past three years -- and nearly 167% in 2024. It is no secret that the company's absolute dominance in the rapidly growing artificial intelligence (AI) market has been the key driving force behind this growth.
NASDAQ: NVDA
Key Data Points
However, Nvidia's glory days are far from over. The global AI market is expected to grow at breakneck speed. While there is no consensus about the overall size of the AI market, most analysts expect it to be worth hundreds of billions to almost $1.8 trillion by 2030. Nvidia's leadership in AI-optimized hardware and software has positioned it as a major beneficiary of this tailwind.
Nvidia is well positioned to continue its share price trajectory next year, albeit with few major pullbacks as some investors start rotating out of equities to fixed-income investments amid rate cuts. Here's what to expect from Nvidia in the coming year.
Data center and enterprise AI market
According to Citi Research estimates, global data center capital expenditures by the big four cloud providers -- Amazon, Meta Platforms, Microsoft, and Alphabet -- are expected to grow by 40% to 50% in 2025. The research firm also expects data centers to increase AI cluster sizes to more than 300,000 GPUs by 2025 -- and train and run large AI models not in one data center, but across multiple data centers. Being the current undisputed technological leader with 70% to 95% of the global AI chip market, Nvidia stands to benefit significantly from the increasing expansion of the worldwide data center infrastructure.
Nvidia's data center business is poised to grow at an impressive pace, thanks to its already large installed GPU base and the widespread adoption of the CUDA parallel computing platform. Since developers are keen on ensuring maximum utility and broad adoption of their AI applications, the majority prefer Nvidia hardware and software over competitors. This network effect has helped the company build a strong competitive advantage in the AI market.
In the recent quarter (the second quarter of fiscal 2025, ended June 30, 2024), the company reported record data center revenue of $26.3 billion, up 154% year over year, driven mainly by the robust demand for its Hopper architecture chips and networking systems. While cloud service providers accounted for 45% of the data center revenue, more than 50% can be attributed to consumer internet companies and enterprise companies.
According to imarc estimates, the global enterprise AI market is estimated to grow annually at a compound average growth rate of 34% from $22.8 billion to $341.5 billion in 2032. Nvidia is also well positioned to capitalize on this opportunity since it is already working with most Fortune 100 companies on multiple AI initiatives. The company has also introduced NIM Agent Blueprint, a catalog of reference applications that includes software to help enterprises build and deploy custom generative AI applications including AI chatbots, AI agents, and generative AI copilots. Hence, enterprise AI can emerge as a major growth catalyst in the coming year.
Blackwell chips
Nvidia is committed to maintaining its technological leadership in the ever-changing AI landscape. The company has switched to a one-year product cadence from the previous two-year timeframe -- implying the company will launch major new products and software annually.
Nvidia is scheduled to ramp up production of its Blackwell GPUs in the fourth quarter of fiscal 2025 and continue in fiscal 2026. Since Blackwell chips provide three to five times more AI throughput in a power-limited data center than Hopper GPUs, the demand for these chips is already above supply. In a recent CNBC interview, CEO Jensen Huang claimed that the demand for Blackwell chips is "insane."
Management expects Blackwell's sales to contribute several billion dollars to Nvidia's revenue in the fourth quarter. As Blackwell sales grow, Nvidia may see further improvement in its top- and bottom-line numbers.
Financials and target price
Analysts expect Nvidia's fiscal 2025 revenue and adjusted earnings per share (EPS) to be $125.5 billion and $2.84, respectively. This would imply a year-over-year revenue growth of nearly 106% and EPS growth of $119%.
With such robust growth estimates, the consensus analyst target price is $152.44 -- implying an upside potential of 13.09%, which seems easily achievable. Considering the robust demand for both the Hopper and Blackwell GPUs, the company's strong moat, and unfolding opportunities in the data center and enterprise AI segments, the company's highest estimated target price of $200 -- implying an upside of almost 48% -- seems to be within reach in the next year.
Hence, Nvidia seems poised to prove to be a smart purchase in 2024.
