Nvidia’s business has grown this year as its chips have become the hardware of choice for artificial intelligence (AI) developers around the world.
Nvidia’s years of dominance in graphics processing units (GPUs) have made it well-positioned to serve the entire AI market while its competitors struggle to catch up. As a result, the company’s stock and earnings soared in 2023.
Those who bought Nvidia stock at the start of the year have enjoyed tremendous growth. But what about those who invested a decade ago when the chipmaker was still finding its footing in technology?
Nvidia shares have hit record highs since 2013, when the company became dominant in gaming, data centers and AI. The chart shows that its stock price has risen more than 12,000% during that period. So if you had invested $5,000 in Nvidia stock 10 years ago, that investment would be worth about $625,000 today. This translates into an average annual return of a remarkable 62.06%, which almost no other company can boast.
In fact, over the period under review, only one company has outperformed Nvidia – and that’s Celsius Holdings Inc, whose shares are up a remarkable 31,000%. But what are the chances of finding the best-appreciating stock, and not a particularly big one, among the sea of assets?
Nvidia is building a network of factories in Japan
The goal is for the country to become a leading producer of AI chips
It is interesting that another chip company completes the list of top-3 most profitable stocks for the last decade – AMD. Investors in the company’s shares, however, realized a return nearly four times smaller than that of Nvidia – in the amount of nearly 3,200%.
Nvidia’s meteoric rise is due to success in multiple areas of technology. Let’s take a look at Nvidia’s biggest growth drivers and whether the company can continue to deliver significant gains in the coming years.
Nvidia’s business has exploded along with strong positions in gaming and data centers
Long before Nvidia became a prominent figure in AI, it took on the daunting task of expanding into a market that barely existed. The company was among the first to start selling GPUs to the consumer sector, encouraging people to build custom computers for specific needs.
The gaming community has fully embraced this, using Nvidia GPUs to build powerful video game machines that offer far better performance than any game console on the market. According to Zion Market Research, the PC gaming industry was valued at $26 billion last year and is expected to reach around $32 billion by the end of the decade. Meanwhile, Nvidia holds an 87% market share in desktop GPUs, which are critical to the growth of PC gaming.
Nvidia’s success in video games has led to 500% revenue growth in the gaming segment over the past decade. The gaming market has faced some headwinds over the past two years as macroeconomic headwinds have curbed consumer spending, but trends in 2023 are positive as we head into the new year.
One small country brought in 15% of Nvidia’s revenue, or $2.7 billion
The city-state manages 60% of the total data center capacity in Southeast Asia
The tech giant’s achievements in gaming have given it the means and resources to expand into other areas of technology, with Nvidia now primarily a data center company. Growth in markets such as cloud computing and AI has boosted demand for the chips, with Nvidia’s data center revenue jumping more than 7,000% over the past 10 years to reach net sales of $14 billion in the third quarter of 2024 (end of October 2023 d.).
Gaming and data centers remain the two most profitable parts of Nvidia’s business, accounting for 95% of revenue last quarter. So the question is, can these businesses continue to post stellar growth?
Can Nvidia continue to deliver significant profits for the next decade?
The market decline has led to video game industry sales of $193 billion in 2022, down 5% from the previous year. Nvidia was similarly affected, with revenue in its gaming segment falling 27% year-on-year between fiscal 2022 and 2023.
However, easing inflation and lower production costs have boosted Nvidia’s gaming business and suggest the worst of the market downturn is now behind it. In the third quarter of 2024, Nvidia reported gaming revenue growth of 81% year-over-year, reaching nearly $3 billion.
Global Market Insights forecasts the GPU market to expand at a compound annual growth rate (CAGR) of 25% through 2032 as the industry continues to recover and expand.
Chip wars: US to prevent Nvidia from exporting certain goods to China
The restrictions also affect other chip makers. According to analysts, Nvidia will be the hardest hit
But Nvidia’s biggest growth driver in the coming years will almost certainly be data centers. In the third quarter of 2024, data center revenue jumped 279% year over year, benefiting significantly from increased sales of AI GPUs. The artificial intelligence market is expected to grow at a CAGR of 37% until 2030, indicating that the demand for chips is likely to continue to grow.
Analysts forecast that Nvidia’s earnings could rise to $23 per share in fiscal 2026.
*The material is analytical in nature and is not advice to buy or sell assets in the financial markets.
2023-12-17 19:00:05
#invested #Nvidia #years
