Nvidia‘s (NASDAQ: NVDA) business has surged this year, as its chips became the preferred hardware for artificial intelligence (AI) developers worldwide.
Nvidia’s years of dominance in graphics processing units (GPUs) made it well equipped to serve the entire AI market as its competitors scrambled to catch up. As a result, the company’s stock and earnings have skyrocketed in 2023.
Those who bought shares in Nvidia at the start of the year have enjoyed immense growth. But what about those who invested a decade ago, when the chipmaker was still finding its footing in tech?
Nvidia’s stock has hit record heights since 2013, as the company became dominant in gaming, data centers, and AI. The chart shows its share price climbed more than 12,000% in that period. So if you had invested $5,000 in Nvidia’s stock 10 years ago, that investment would be worth around $625,000 today.
The company’s meteoric rise is owed to success in multiple areas of tech. Let’s take a look at Nvidia’s biggest growth drivers and if the company can continue delivering significant gains in the coming years.
Nvidia’s business has exploded alongside solid positions in gaming and data centers
Long before Nvidia became a prominent figure in AI, it took on the weighty task of expanding in a market that barely existed. The company was among the first to begin selling GPUs for the consumer sector, encouraging people to custom-build computers for specific needs.
The gaming community fully embraced this, using Nvidia’s GPUs to build high-powered video game machines that offer far better performance than any game consoles on the market. According to Zion Market Research, the PC games industry was valued at $26 billion last year and is projected to hit about $32 billion by decade’s end. Meanwhile, Nvidia holds an 87% market share in desktop GPUs, which are crucial to the growth of PC games.
Nvidia’s success in video games has seen its gaming segment post revenue growth of 500% over the last decade. The gaming market has hit some roadblocks over the last two years as macroeconomic headwinds curbed consumer spending, but trends in 2023 are positive as we head into the new year.
The tech giant’s achievements in gaming gave it the funds and resources to expand into other areas of tech, with Nvidia now primarily a data center firm. Growth in markets like cloud computing and AI has increased demand for chips, with Nvidia’s data center revenue soaring more than 7,000% in the last 10 years and hitting net sales of $14 billion in its third quarter of 2024 (ending October 2023).
Gaming and data centers remain the two highest-earning parts of Nvidia’s business, accounting for 95% of its revenue in its most recent quarter. So the question is, can these businesses continue to post stellar growth?
Can Nvidia continue to deliver significant gains over the next decade?
A market downturn saw the video gaming industry achieve sales worth $193 billion in 2022, a 5% decrease from the previous year. Nvidia was similarly affected, with revenue in its gaming segment falling 27% year over year between its fiscal 2022 and 2023.
However, easing inflation and reductions in manufacturing costs have improved Nvidia’s gaming business and suggest the worst market declines are behind it. In Q3 2024, Nvidia posted gaming revenue growth of 81% year over year, hitting close to $3 billion.
Global Market Insights projects the GPU market to expand at a compound annual growth rate (CAGR) of 25% through 2032 as the industry continues to recover and expand.
However, Nvidia’s biggest growth driver in the coming years will almost certainly be data centers. Q3 2024 saw data center revenue soar 279% year over year, massively profiting from increased AI GPU sales. The AI market is expected to develop at a CAGR of 37% through 2030, indicating chip demand is only likely to continue rising.
The table shows Nvidia’s earnings could climb to $23 per share in fiscal 2026. That figure, multiplied by its forward price-to-earnings ratio of 39, would yield a stock price of $897 and deliver growth of 84% from its current position.
As a result, a $5,000 investment in Nvidia today could be worth $9,200 in just a few years. So it could be worth investing in this chipmaker now to potentially see big gains over the long term.
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
If You Invested $5,000 in Nvidia 10 Years Ago, This Is How Much You Would Have Today was originally published by The Motley Fool
Source: finance.yahoo.com