Nvidia (NVDA +4.30%) stock has been under pressure this year on account of various factors, such as the tariff-fueled trade war, concerns about rising competition in the market for artificial intelligence (AI) accelerator chips, U.S. restrictions on chip exports, and fears of a potential slowdown in spending on AI infrastructure. However, the company's latest quarterly results show that it's continuing to grow nicely.
Nvidia released its results for its fiscal 2026 first quarter (which ended April 27) on May 28. The company's revenue and earnings were better than Wall Street's expectations, despite its business taking a hit due to the export controls that blocked sales of its H20 processors to China.
The data center business was once again the driving force behind Nvidia's impressive results, growing 73% year over year and accounting for 89% of its top line. But at the same time, the company also benefited from the growing adoption of its chips in two other areas. In fact, a closer look at the semiconductor specialist's growth drivers suggests that it is set to benefit from the proliferation of AI in multiple end markets, which could help the stock sustain its solid momentum over the next five years.
Image source: Getty Images.
Nvidia's multiple catalysts should ensure solid growth
The data center business is the cornerstone of Nvidia's growth. Worth noting is that it is growing at a healthy pace despite restrictions on sales of the company's chips to China, which cost Nvidia several billions of dollars in lost revenue last quarter. CEO Jensen Huang pointed out that those export controls have effectively closed the $50 billion AI chip market in China to Nvidia.
NASDAQ: NVDA
Key Data Points
But that shouldn't matter a lot in the long run, as global investment in AI infrastructure is expected to hit a humongous $7 trillion by 2030, according to a forecast by McKinsey, with nearly three-fourths of that directed toward data centers. This huge outlay on AI infrastructure will be driven by multiple factors, such as an increase in inference and training workloads, the adoption of AI applications across various industries and applications, and investments by governments around the globe to enhance economic growth and security.
So even if Nvidia remains locked out of the Chinese market, it still has a lot of room for growth in AI hardware. The good part is that the company is building AI infrastructure for several countries such as Japan, India, Korea, Spain, Italy, Germany, and the U.K. Huang believes that sovereign AI is set to become the next big growth driver for Nvidia.
Importantly, Nvidia is witnessing robust growth in other markets, such as gaming and automotive as well. Its revenue from the gaming and AI PC segment shot up 48% from the year-ago period to a record $3.8 billion. Meanwhile, the year-over-year growth of its automotive and robotics revenue nearly matched that of the data center business.
Both these segments can keep growing at elevated levels over the next five years thanks to AI. For instance, IDC projects that shipments of AI-capable PCs will grow at an annualized rate of 42% through 2028. It's also forecasting that shipments of 100-plus TOPS graphics processing units (GPUs) for PCs will grow from 23 million units in 2023 to more than 36 million units in 2028. Nvidia is the leader in the PC GPU market, with an estimated share of more than 80%, putting the company in a solid position to capitalize on this opportunity.
Meanwhile, the company is also benefiting from its multiple partnerships in the automotive market, where its clients are using its platform to develop self-driving features. The automotive GPU market's revenue is expected to grow at an annualized rate of 33% through 2030, generating $45 billion in revenue at the end of the forecast period. This should prove another outstanding growth opportunity for the company.
In the end, Nvidia seems well equipped to sustain solid growth rates over the next five years on account of its dominant presence in these multibillion-dollar markets, and that could help the stock deliver more upside.
How much stock price upside can investors expect?
Analysts' consensus estimates are for Nvidia's earnings to increase by 43% in the current fiscal year to $4.28 per share, followed by healthy double-digit percentage gains over the next couple of years as well.
NVDA EPS Estimates for Current Fiscal Year data by YCharts.
The chart above also tells us that analysts have raised their earnings growth expectations for Nvidia for fiscal years 2027 and 2028. Its lucrative growth drivers suggest that it may be able to outpace those forecasts in the long run. But even if we assume that the company's bottom line will grow at an annual rate of just 20% in the two years following fiscal 2028, its earnings could hit $9.50 per share after five years.
Nvidia is currently trading at 31 times forward earnings, a discount to its five-year average multiple of 40. Assuming that the stock trades at a discounted forward earnings multiple of 25 in five years, its stock price at that point would be about $237. That points toward a potential gain of 73% from current levels. However, stronger gains cannot be ruled out if the company continues to command a richer valuation on account of its elevated growth rates. That makes this AI stock worth buying and holding for the long run.
