Nvidia (NASDAQ: NVDA) has been delivering outsized growth throughout the artificial intelligence (AI) boom, with earnings soaring in the triple digits quarter after quarter. The company dominates the AI chip market, holding an 80% share, but its success isn't only due to this one element. Instead, Nvidia's earnings have taken off thanks to its development of an entire suite of AI products and services, making Nvidia the go-to destination for any company launching an AI project.
This has helped the stock advance a mind-boggling 2,700% over the past five years -- and the momentum continues, with the stock heading for a gain of more than 170% so far this year. In spite of this fantastic earnings and stock performance, though, investors have worried about whether Nvidia can keep the pace of growth going -- or whether its highest-growth days are in the past.
CEO Jensen Huang recently offered reason to be optimistic, as he gave Nvidia stock investors billion-dollar news. Let's check out the details.
Image source: Getty Images.
Nvidia's rise to AI fame
Nvidia, as mentioned, began its ascent to AI fame through its graphics processing units (GPUs). These powerful chips originally served the video game market, but the company realized that the GPU's ability to process multiple tasks simultaneously made it ideal for plenty of other uses -- including AI.
Of course, Nvidia still sells its GPUs to the gaming industry, and revenue there even climbed 16% in the most recent quarter, but AI has jumped ahead to become the company's biggest business. In the quarter, data center revenue -- which includes AI products and services -- made up 87% of total revenue and soared to a record $26.3 billion. And total quarterly revenue now is more than what the company generated in annual revenue as recently as the 2023 fiscal year.
Today, though, investors may question the ability of Nvidia to keep delivering triple-digit revenue growth. After all, earnings growth generally doesn't continue at this rate forever, even for a highly innovative company. And Nvidia's forecast for revenue in the coming quarter calls for a double-digit increase over last year's level.
Now, let's get to the billion-dollar news that CEO Jensen Huang recently delivered. It has to do with a big movement in the world of computers and AI right now, and that's updating older computer systems and data centers. Huang, speaking during an interview with the BG2Pod podcast, said the world has $1 trillion of older systems to update -- and we're only $150 billion into that task so far.
Billions of dollars of business ahead
That suggests billions of dollars of business lies ahead for Nvidia, and this should translate into significant earnings growth -- and potentially explosive stock performance, too.
As mentioned, this doesn't necessarily mean earnings will rise in the triple digits every quarter. But that's OK, and here's why: Comparison periods are becoming more difficult, with Nvidia's earnings numbers already very strong this year, for example.
So it's important to consider the actual level of earnings as well as the company's gross margin -- Nvidia's is extremely wide, at more than 70% -- along with the growth figures. And when we do this, Nvidia's present situation, as well as long-term prospects, look incredibly bright.
On top of this, it's important to remember that Nvidia's current dominance in the field of AI, along with the company's focus on innovation, with a pledge to update its GPUs annually, should put it in the perfect position to benefit as the world updates computing systems.
All this means Nvidia's best days aren't in the past, and instead, the best days actually may span a long period of time well into the future. As a result, now is a fantastic time to get in on Nvidia stock, which looks reasonably priced at 47x forward earnings estimates , considering the company's track record, potential, and market position.
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Adria Cimino 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 .
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