Since the beginning of 2023, Nvidia (NVDA +1.73%) has added more than $2.2 trillion to its market capitalization on the back of the artificial intelligence (AI) boom. Demand is through the roof for the company's graphics processing units (GPUs) for the data center, which are the gold standard for developing AI models.
Nvidia's customers include some of the world's biggest technology companies, which are battling for AI supremacy, including Microsoft, Amazon, Meta Platforms, and Alphabet. These four companies are forecast to spend a record amount of money on data center infrastructure during 2025.
But according to Nvidia CEO Jensen Huang, that spending will increase significantly every year for the foreseeable future, and cross an important milestone in 2028. The company continues to launch new chips to maintain its edge over the competition, so here's where its stock could be in three years.
Image source: Nvidia.
There could be $1 trillion in data center spending in 2028
Nvidia's H100 data center GPU dominated the industry in 2023 and for most of 2024. It was based on the company's Hopper architecture, which has since been superseded by Blackwell and, more recently, Blackwell Ultra. The upcoming Blackwell Ultra GB300 GPU can deliver up to 50 times more performance than the H100 in certain configurations, because it was designed for next-generation AI models, which are capable of "reasoning."
In the past, chatbots like OpenAI's ChatGPT would quickly render one-shot responses to users' queries, which made them convenient, but they occasionally blurted out inaccurate information. Reasoning models spend more time thinking and correcting potential errors in the background in order to deliver more polished responses. While this is a great step forward for the AI industry, it does create some new challenges.
Huang says reasoning models require a staggering 100 times more computing power than their predecessors for two reasons. First, they consume 10 times more tokens than traditional large language models (LLMs) because of all the thinking that goes on in the background. Second, they are much slower to render responses, which means GPUs need to be up to 10 times more powerful to offset the delays, or else AI will lose the convenience factor that people have grown to love.
That's why new chips based on the Blackwell and Blackwell Ultra architectures are in such high demand. The four Nvidia customers I mentioned at the top -- Microsoft, Amazon, Meta, and Alphabet -- have told investors they plan to spend over $300 billion (combined) on data center infrastructure and chips this year, which would be a record. That doesn't include other big spenders like OpenAI, Tesla, or Oracle.
But Huang thinks this is just the beginning, because three years from now in 2028, he predicts data center spending will top $1 trillion annually, which would be a monumental tailwind for Nvidia's business.
NASDAQ: NVDA
Key Data Points
Nvidia stock could be above $200 in three years
Nvidia generated a record $130.5 billion in total revenue during its fiscal year 2025 (which ended Jan. 26). The data center segment accounted for $115.2 billion of that figure, which represented a whopping 142% increase from the prior year, highlighting how quickly GPU demand is growing.
Nvidia's soaring top line also drove a significant increase in profits, with the company's earnings per share (EPS) soaring by 130% to $2.99 in fiscal 2025. That places its stock at a price-to-earnings (P/E) ratio of just 36, which is a 39% discount to its 10-year average of 59.6.
But the stock looks even cheaper on a forward basis. Wall Street's consensus estimate (provided by Yahoo! Finance) suggests Nvidia will deliver $4.42 in EPS during the current fiscal year 2026, placing its stock at a forward P/E ratio of 23.9:
NVDA PE Ratio data by YCharts.
In other words, Nvidia stock would have to soar by around 149% over the next 12 months just to trade in line with its 10-year average P/E ratio of 59.6, implying a price of $263 per share. But even if its P/E ratio remains at 36 instead, the stock could still top $200 in fiscal 2027 (which ends in January 2027) based on Wall Street's earnings forecast for that year.
Therefore, as long as Nvidia maintains some annual earnings growth after that, its stock should be trading well beyond $200 in calendar year 2028. Considering that's the year Huang is forecasting $1 trillion in data center spending, the company should have no problem generating more earnings.
The reason Nvidia's P/E ratio looks so attractive right now is because its stock is down 29% from its all-time high amid the simmering global trade tensions, which threaten to dampen economic growth in the near term. Some of Nvidia's top customers might be forced to temporarily pull back on their data center investments if they suffer a slowdown in their core businesses, which would reduce demand for GPUs and dent the company's earnings potential.
However, AI is shaping up to be a long-term boom, and the industry can't move forward without the hardware supplied by companies like Nvidia. Therefore, investors who buy Nvidia stock today might have to weather some volatility while the U.S. negotiates new trade deals with other countries, but they could do extremely well if they put the short-term noise aside and stay focused on the years ahead.
