Nvidia (NVDA +1.65%), the world's largest producer of discrete GPUs (graphic processing units), became the world's first $5 trillion company on Oct. 29. Its market cap has pulled back to $4.4 trillion as of this writing, but it's still the world's most valuable company by a mile.
Nvidia's stock skyrocketed 22,420% during the past 10 years, and that life-changing rally would have turned a $10,000 investment into $2.25 million. Let's see what that enormous return tells us about the booming AI market -- which transformed Nvidia from a niche chipmaker into a household name.
Image source: Getty Images.
How did Nvidia dominate the AI market?
A decade ago, Nvidia generated most of its revenue from its discrete gaming GPUs for PCs. Unlike CPUs, which process single pieces of data through scalar processing, GPUs process a wide range of integers and floating point numbers simultaneously with vector processing. That difference makes GPUs better suited for rendering complex computer graphics at a faster rate than stand-alone CPUs. To play the most graphically demanding PC games, gamers needed to buy discrete GPUs from Nvidia or AMD (AMD +1.02%).
However, Nvidia also realized that GPUs could be used to process complex machine learning and artificial intelligence (AI) tasks at data centers. It launched its first high-end Tesla data center GPUs in 2006, but its recent growth spurt didn't really kick off until it launched the Tesla V100 (Volta) GPUs in 2017.
The V100 was optimized for AI training and inference tasks in data centers, and many cloud infrastructure companies scooped up those chips to support their newest AI applications. It reinforced its dominance of that expanding market with its more powerful Turing (2019), Ampere (2020), Hopper (2022), and Blackwell (2024) chips. It also locked in its customers with CUDA (Compute Unified Device Architecture), its proprietary programming platform optimized for its own chips.
Today, Nvidia controls more than 90% of the discrete GPU and data center GPU markets. Most of the world's leading cloud and AI companies -- including Amazon, Microsoft, OpenAI, and Alphabet's Google -- use Nvidia's data center GPUs to support their latest AI applications.
NASDAQ: NVDA
Key Data Points
How much bigger could Nvidia grow?
That's why Nvidia's revenue grew at a compound annual growth rate (CAGR) of 39% from fiscal 2015 to fiscal 2025 (which ended this January) as its adjusted net income rose at a CAGR of 57%.
From fiscal 2025 to fiscal 2028, analysts expect its revenue and adjusted earnings per share (EPS) to increase at CAGRs of 45% and 29%, respectively, as the AI market continues to expand. And at $180 per share, Nvidia's stock still doesn't look too expensive at 23 times next year's projected earnings.
Assuming Nvidia matches analysts' estimates, and that its adjusted EPS keep growing at a robust CAGR of 25% during the next seven years, and trades at a reasonable 30 times earnings by the final year, its stock could rise more than fivefold to about $924 per share within the next 10 years.
That dizzying rally could boost its market cap to nearly $23 trillion. For reference, gold -- the world's most valuable asset -- currently has a market cap of $29 trillion.
That outlook might seem wildly optimistic, but Nvidia only became a $1 trillion company in May 2023. Its market cap tripled to $3 trillion by June 2024, and it only reached $4 trillion this July before briefly hitting the $5 trillion mark last month. Therefore, it might actually be too conservative to expect it to rise fivefold during the next decade.
What does Nvidia's growth tell us about the AI market?
The global AI market could expand at a CAGR of 31.5% from 2025 to 2033, according to Grand View Research. That explosive growth trajectory should be supported by the rising usage of generative AI tools, AI agents, and other AI automation services across a wide range of industries.
It's hard to tell which AI software companies will dominate that market during the next decade, but Nvidia should sell the best picks and shovels for that AI gold rush for the foreseeable future. It could face competition from AMD's cheaper data center GPUs, first-party AI accelerators from Google and other cloud giants, and other types of AI chips. But it should continue to dominate the market with its best in breed chips while locking its existing customers into CUDA's sticky ecosystem.
Nvidia's rapid transformation from a gaming GPU maker into the world's dominant AI chipmaker shows us just how fast the AI market is expanding and evolving. If you expect that secular expansion to continue, then it's still a good idea to accumulate a few shares of Nvidia today.
