Nvidia (NASDAQ: NVDA) has experienced a remarkable surge in its business this year, emerging as a preferred hardware choice for artificial intelligence (AI) developers globally. The company’s dominance in graphics processing units (GPUs) has positioned it well to serve the expanding AI market, resulting in substantial stock and earnings growth throughout 2023.
Investors who entered the market at the beginning of the year have witnessed substantial gains. However, those who invested a decade ago, when Nvidia was still establishing its presence in the tech industry, have seen extraordinary growth. Nvidia’s stock has reached record highs since 2013, gaining over 12,000% during this period. A $5,000 investment in Nvidia’s stock a decade ago would now be valued at approximately $625,000.
Nvidia’s Meteoric Rise and Growth Drivers
Nvidia’s success is attributed to its accomplishments across various tech sectors. Before becoming a dominant force in AI, the company pioneered the sale of GPUs for consumers, encouraging custom-built computers tailored to specific needs. The gaming community embraced Nvidia’s GPUs, powering high-performance gaming machines that outperformed traditional game consoles. With an 87% market share in desktop GPUs, Nvidia has played a pivotal role in the $26 billion PC games industry, projected to reach $32 billion by the end of the decade.
The gaming segment has experienced remarkable revenue growth of 500% over the past decade, despite challenges faced by the industry in recent years. Nvidia’s expansion into data centers, primarily a data center firm today, was made possible by the success in gaming. The growth in cloud computing and AI has driven demand for chips, leading to a more than 7,000% increase in data center revenue over the last decade, reaching $14 billion in the third quarter of 2024.
Gaming and data centers constitute 95% of Nvidia’s recent quarterly revenue, indicating their significance to the company’s financial success.
Outlook and Future Growth
While the gaming industry faced challenges in recent years, easing inflation and reduced manufacturing costs have positively impacted Nvidia’s gaming business. In Q3 2024, the company reported gaming revenue growth of 81% year over year, approaching $3 billion.
The GPU market is projected to expand at a compound annual growth rate (CAGR) of 25% through 2032, contributing to Nvidia’s potential growth. However, the primary driver of growth in the coming years is expected to be data centers. In Q3 2024, data center revenue surged 279% year over year, benefiting significantly from increased AI GPU sales. The AI market’s anticipated CAGR of 37% through 2030 suggests continued growth in chip demand.
Considering these factors, a $5,000 investment in Nvidia today could potentially be worth $9,200 in the coming years, making it a compelling option for investors seeking long-term gains. However, investors should carefully consider market trends and the company’s performance before making investment decisions.
