Where Will Nvidia Stock Be in 3 Years?

Nvidia (NASDAQ: NVDA) has become a significant wealth builder for investors over the past three years, turning an investment of $1,000 into over $4,500 at the present moment. This remarkable growth stems from a staggering 354% increase in the company’s stock price during this time, largely attributed to its leading role in the highly profitable artificial intelligence (AI) chip market.

The performance of Nvidia shares has greatly outstripped the gains of the Nasdaq Composite (NASDAQINDEX: ^IXIC), which has increased by 23% during the same time frame. Nvidia's exceptional stock performance is due to impressive growth in its revenue and earnings, driven by high demand from both customers and governments for its AI chips essential for training and deploying AI models.

As we enter the beginning of 2025, it is a good time to examine Nvidia’s future prospects for the next three years, focusing on whether this high-growth AI stock can continue to deliver further benefits to its investors.

Nvidia's Expanding Market Potential

The scale of Nvidia's business has expanded greatly in the last three years. The company expects to finish its fiscal year 2025 with estimated revenue of $128.6 billion, which combines its forecasted revenue for fiscal Q4 with revenue generated in the first nine months of the year.

To put this in perspective, Nvidia reported revenue of $26.9 billion for fiscal year 2022. This compares to a projected compound annual growth rate (CAGR) of 68% over these three years, leaving many investors to ponder whether Nvidia can maintain such extraordinary revenue growth moving forward.

A recurring 68% CAGR over the next three years could elevate Nvidia's revenue to nearly $610 billion by the end of fiscal 2028. Although this number may appear overly ambitious, it is backed by the vast market opportunity Nvidia sees. For instance, the company envisions a $1 trillion revenue opportunity within the data center market alone.

Nvidia's CEO, Jensen Huang, emphasizes that "every single data center will have GPUs" in the future, which enables accelerated computing through specialized hardware like graphics cards, allowing for more efficient work completion while conserving energy. This innovative technology is projected to play a vital role in stabilizing power consumption in data centers in the long run.

Furthermore, the demand for new data center capacity will present Nvidia with a lasting growth advantage. According to McKinsey, global data center capacity is anticipated to rise at an annual rate of 19% to 22% through 2030 to cater to the increasing demand for generative AI. Consequently, Nvidia's data center operations have considerable room to expand, especially given that the company is expected to end fiscal 2025 with just under $100 billion in revenue from this segment.

The $1 trillion market potential indicates that Nvidia may have only tapped about 10% of its future opportunity. Additionally, with a dominant market share of over 85% in data center GPUs, Nvidia stands to benefit significantly from the anticipated growth in accelerated computing.

Importantly, Nvidia's growth is not confined merely to data centers. Its GPUs are also applied in various other fields, including creating digital twins for industrial applications, enhancing gaming experiences, AI personal computers (PCs), as well as automotive and robotics sectors. Nvidia reported over $4.2 billion in combined revenue from these three segments last quarter, presenting a 20% increase year-over-year.

These growth segments are expected to provide strong support for Nvidia. For instance, the gaming GPU market is projected to contribute an additional $49 billion in revenue from 2023 to 2028, driven by a CAGR of 21%. Notably, Nvidia holds a remarkable 90% share of the gaming GPU market, positioning the company to seize further opportunities within this expanding market.

Likewise, the digital twin market is anticipated to grow from $10 billion in 2023 to reach $110 billion by 2028. Nvidia’s GPUs are instrumental in this growth, facilitating the development of virtual models of factories and streamlining workflows to increase operational efficiency. Major enterprises such as Foxconn, Reliance, and Toyota are utilizing digital twins in their operations with the help of Nvidia's technology.

Thus, these multiple avenues of growth suggest that Nvidia is well-equipped to sustain its remarkable growth trajectory over the next three years.

Estimating Nvidia's Stock Potential

Having established that Nvidia can potentially continue its robust revenue growth, the next question is how much upside investors can expect. According to consensus estimates from YCharts, Nvidia’s earnings per share (EPS) are projected to increase from $2.95 for fiscal 2025 to $5.59 by fiscal 2027, reflecting an annual growth rate of 37% over this two-year period.

If we adopt a conservative perspective and assume Nvidia’s earnings grow by 30% in fiscal 2028, the EPS could reach $7.27. Multiplying the projected earnings by the Nasdaq-100’s average earnings multiple of 33 (considering it as a proxy for tech stocks) suggests the stock price could hit approximately $240.

This projection translates to an impressive 79% potential gain over the next three years from the current price levels. Given that Nvidia is trading at 32 times its forward earnings, investors are presented with a compelling opportunity to invest in this AI stock, hinting at further upside in the future.

Disclaimer: The author does not have any positions in any of the stocks mentioned. The information presented in this article is for informational purposes only and does not constitute financial advice.

Nvidia, Stock, Growth