Rewind to early 2023 -- few believed that Nvidia (NVDA +1.13%) could climb any higher. It already felt expensive and fully priced.
Then it surged nearly tenfold, reshaping itself from a chip supplier into a global artificial intelligence (AI) infrastructure behemoth. Today, with a market cap of $3.5 trillion, it's not about whether Nvidia dominates the AI landscape, it's about what's next.
Image source: Getty Images.
Recent financial performance
In its most recent quarter (the first quarter of fiscal 2026, ended April 27), Nvidia delivered a jaw-dropping $44.1 billion in revenue, up 69% year over year. For perspective, that's more than Starbucks and Netflix earn combined in a quarter.
NASDAQ: NVDA
Key Data Points
Of that total, $39.1 billion came from the data center segment, representing a 73% increase year over year. These results reflect the dramatic demand for the company's AI infrastructure from enterprises and governments.
Growth catalysts
Several major growth drivers remain intact. Enterprises and cloud providers are investing aggressively in data centers and AI infrastructure. The AI data center market is expected to be worth nearly $100 billion by 2030.
The company's Blackwell architecture chips, the successors to the widely adopted Hopper chips, are already seeing strong demand from hyperscalers and enterprises, primarily for AI inference workloads (deploying AI models in a production environment) -- far ahead of supply. To cater to the demand, Nvidia reserved full production capacity at Wistron's new Taiwan plant through 2026 for Blackwell and Rubin AI servers.
Nvidia is no longer just a chipmaker. It now offers a full-stack solution to accelerated computing needs. From hardware to software and networking, Nvidia's ecosystem supports high-performance and low-latency deployment. Nvidia's software offerings are contributing recurring and high-margin revenue streams. Hence, as software becomes a larger portion of the company's overall revenue mix, gross margin can increase from the already high 61%.
Beyond data centers, Nvidia is also positioned to benefit from the increasing demand for AI technologies across new use cases in areas such as automotive, edge AI, robotics, and industrial design. These use cases are still developing but can prove significant catalysts in the long run.
Major risks
Despite its many pros, Nvidia has its share of risks.
Nvidia is facing revenue headwinds due to restrictions on international exports, especially to China. The company estimated a loss in H20 chip revenue of around $8 billion in the second quarter due to U.S. export controls for China. In the event of escalating geopolitical tensions, this poses a significant risk to Nvidia.
Competition is also heating up. Advanced Micro Devices is catching up, while hyperscalers such as Alphabet and Amazon are also developing custom chips.
Analyst targets and valuation
Analysts now estimate the stock's 12-month price target around $176, with the highest target estimate of $250 and the lowest of $100.
To see if these estimates make sense, let's use consensus analyst estimates for Nvidia's earnings per share (EPS). Analysts are estimating Nvidia's EPS to be $4.32, $5.72, and $6.44 in fiscal 2026, fiscal 2027, and fiscal 2028, respectively.
Nvidia is trading at 36 times forward earnings. Applying a more conservative multiple of 30x, (down from today's elevated levels but suitable for a high-growth technology stock), and you get a three-year price target of around $193 -- roughly 25% upside from today's levels, or around 7% compound annual growth rate (CAGR). This does not seem a very attractive proposition in the current high-inflation environment.
However, if Nvidia's bull case holds, then the company's EPS can reach $7.63 in fiscal 2028 and enjoy a premium multiple of 35x (more in line with current levels). In that case, the company's share price can be nearly $267 at the end of 2028 -- around 73% up from today's level, or a 20% CAGR.
Finally, in the bear case, Nvidia's EPS is estimated to be around $5.11 and forward P/E multiple can be close to 25 (the lower end for a high-growth company), translating into a $127.11 share price. This would be almost 17% lower than today's price.
Conclusion
Nvidia's valuation already incorporates a significant amount of optimism, and the base case, with 7% annual returns, may not adequately justify the risk in a high-interest rate environment. While there is upside potential, the stock currently makes sense primarily for long-term investors with a high risk appetite who are very optimistic about the AI infrastructure opportunity.
