Can the chipmaker continue to soar higher after the stellar gains it has posted over the past year?
Early June last year I wrote an article with an identical headline trying to figure out how much of an advantage there is Nvidia (NVDA -0.36%) stock that can deliver, and I have to admit my prediction was way off.
Shares of Nvidia have risen 196% since that article was published last year, more than tripling in value. I estimated that this high-flying semiconductor stock could nearly double in value over a three-year period, but it has exceeded those expectations by a huge margin.
Let’s take a look at why that is and how much profit this successful chipmaker can still make after the tremendous gains it has made over the past year.
Nvidia’s growth has far exceeded Wall Street expectations
A year ago, analysts expected Nvidia to post revenue of $42.9 billion and earnings of $7.68 per share for fiscal 2024. Instead, the company ended the year with adjusted earnings of $12.96 per share on revenue of $60.9 billion. It’s also worth noting that analysts had forecast that Nvidia would post revenue of $50.6 billion in fiscal 2025, followed by $62.7 billion in fiscal 2026.
However, as the following chart shows, analyst expectations for Nvidia have simply skyrocketed over the past year.
NVDA revenue estimates for current fiscal year data based on YCharts
That’s not surprising, considering the chipmaker has delivered better-than-expected growth quarter after quarter thanks to soaring demand for its artificial intelligence (AI) chips. In the first quarter of fiscal 2025 (ended April 28), for example, Nvidia’s revenue rose 262% year over year to $26 billion, and earnings jumped 461% to $6.12 per share.
Such strong growth has led analysts to further increase their growth expectations for the company, as shown in the previous chart. Nvidia CEO Jensen Huang says this stellar growth is here to stay as “enterprises and countries work with Nvidia to move from traditional trillion-dollar data centers to accelerated computing and build a new type of data center — AI factories — to produce a new product: artificial intelligence.”
Investors should note that Nvidia is playing a pioneering role in the spread of AI with its hardware and software offerings. The company controlled a massive 94% of the AI graphics processing unit (GPU) market last year and it sees little competition in this space, despite the best efforts of its rivals. With the global GPU market predicted to grow 31% annually through 2032 and generate $594 billion in annual revenue by the end of the forecast period, there is room for Nvidia to continue growing at a robust pace in the long term.
Additionally, Nvidia has other catalysts beyond the AI data center market. It is also the leading vendor of GPUs used in personal computers (PCs) with an estimated 88% market share. This puts the company in a solid position to achieve healthy growth in the future thanks to the lucrative opportunities present in the overall GPU market.
Healthy earnings growth points to more upside potential
Investors have already seen how quickly Nvidia’s revenue is expected to grow over the next three fiscal years. The good news is that revenue growth will trickle down to profits, too. Analysts expect the company’s earnings to grow at an annual rate of 43% over the next five years. Based on earnings of $1.21 per share in fiscal 2024, Nvidia’s earnings could rise to $7.24 per share after five years.
By multiplying the expected profit after five years by the Nasdaq-100‘s forward earnings multiple of 29 (using the index as a benchmark for technology stocks) points to a share price of $210. That would be a 78% jump from current levels.
However, with the trillion-dollar end-market opportunity the company is sitting on and the rapid pace at which its end markets, such as AI chips, are growing, it won’t be surprising to see this tech stock post stronger gains. over the next five years and exceeds the $200 Street-high price target.
Harsh Chauhan 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.