Nvidia (NVDA 0.33%) has been the must-own stock for the artificial intelligence (AI) race. However, it sold off a fair bit over the past few months alongside the rest of the market. Currently, it sits around 25% to 30% down from its all-time high, trading at levels last seen during the late summer of 2024.
It's not often that a sale price comes around on a big-time winner like this, but today's sale price only really matters if Nvidia is still heading in the right direction a few years from now. So, where will Nvidia be in four years? The answer may surprise you.
Image source: Nvidia.
Nvidia's business has been so dominant that competitors are starting to rise up
Nvidia's graphics processing units (GPUs) drive the company. Originally designed for processing gaming graphics, GPUs soon found many alternative uses. Due to their unique ability to process multiple calculations in parallel, they are useful for any task that requires intense computing power, such as training and running an AI model.
Nvidia isn't the only company making GPUs, but it dominates the market. Most estimates peg Nvidia's data center GPU market share above 90%, which is very impressive. However, with that kind of market share dominance, it invites other players to the industry, as Nvidia is making a ton of money from its GPUs.
Nvidia's profit margins have skyrocketed since the start of the AI race, and some of its clients are getting fed up with the price they must pay for Nvidia GPUs. So, they're starting to look for alternatives.
NVDA Profit Margin data by YCharts.
One area that many of the AI hyperscalers are looking toward is custom AI accelerators, such as those designed by Broadcom (AVGO 1.39%). These units are tailored to process one type of workload and can outperform Nvidia GPUs in certain applications, such as training and running AI models. However, they are tailored for a specific workload, making them inflexible to run others. This likely isn't a big deal, as many of the AI hyperscalers already know how they want their AI workloads to run.
As a result, Nvidia could see some competition coming its way, but it likely won't be enough to dethrone Nvidia as an investment.
There will be plenty of data center revenue to go around
The biggest factor for Nvidia investors is understanding where data center capital expenditures are going. If this spending falls off a cliff, Nvidia's revenue will follow. However, using outside data, Nvidia projects that data center capital expenditures will rise from around $400 billion in 2024 to $1 trillion by 2028.
Over the past 12 months, Nvidia has generated $115 billion from its data center division. If that $400 billion figure is true for 2024, that means it captured just shy of 30% of total data center spending. Should data center capital expenditures expand to the $1 trillion mark and Nvidia keep all of its market share, it would generate around $288 billion. That's monster growth, but Nvidia may not be able to capture all of it due to rising competition from custom AI accelerators.
NASDAQ: NVDA
Key Data Points
Broadcom estimates that the addressable market will be between $60 billion and $90 billion from three major clients alone by 2027. That's about a third of Nvidia's projected 2028 revenue (if it captures all of it), so it's safe to say that Broadcom is targeting Nvidia's market share.
So, is Nvidia doomed over the next few years? I'd say no. The future will likely be a combination of GPUs and custom AI accelerators, meaning stocks like Nvidia and Broadcom will be successful investments. Will Nvidia have the rocket-ship growth it once did? Likely not. But it will likely still put up strong double-digit growth, making it a great candidate for a stock that can beat the market moving forward, especially if you can scoop up shares on sale right now.
However, if the data center market doesn't reach that projected figure, Nvidia's stock may struggle to rise, as its overall revenue may be capped and under pressure as competition rises.
