Buying and holding on to solid companies for a long time is a tried-and-tested strategy for making money in the stock market, as it allows investors to take advantage of the power of compounding and also enables them to capitalize on secular and disruptive growth opportunities.
Nvidia(NASDAQ: NVDA) has been one such magnificent stock that has made savvy and foresighted investors into millionaires. In fact, an investment of just $1,200 made in shares of Nvidia a couple of decades ago is now worth more than $1 million.
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This remarkable surge in Nvidia stock during the past 20 years is due to multiple growth drivers, such as the growing craze of PC (personal computer) and smartphone gaming, the increasing chip content in cars, the advent of cloud gaming, and the fast-growing demand for high-performance computing in data centers.
All these catalysts helped improve sales of Nvidia’s graphics processing units (GPUs). And now, artificial intelligence (AI) has turned out to be yet another powerful growth driver for the chip giant. The good part is that AI adoption is currently in its early phases of growth, and there are several ways in which Nvidia is poised to benefit from this technology.
At the same time, there are additional catalysts that could help this chipmaker deliver outstanding gains in the long run. Of course, Nvidia’s huge market cap of $3.35 trillion means that it may not be able to replicate the red-hot surge that it has clocked during the past two decades, but its growth drivers will make it clear that the company still has enough fuel in the tank to become a part of a million-dollar portfolio.
Let’s look at why.
When Nvidia released its fiscal 2025 third-quarter results (for the three months ended Oct. 27), it delivered record revenue of $35.1 billion. The chipmaker’s top line shot up 94% year over year, driven by a 112% increase in its data center revenue to $30.8 billion. So, the data center business produced nearly 87% of Nvidia’s overall revenue.
It is well known that there is a enormous demand for Nvidia’s data center GPUs for training and deploying AI models. The company controlled 98% of this market in 2023, and its performance this year suggests that it continues to be the dominant player in this sector, since its rivals have failed to make much headway. This bodes well for Nvidia, as the size of the AI chip market is forecast to grow from $123 billion this year to $311 billion in 2029.
However, Nvidia management sees a much bigger opportunity in the data center business beyond AI. On the company’s latest earnings conference call, Chief Executive Officer Jensen Huang pointed out that “$1 trillion worth of computing systems and data centers around the world” are now being upgraded to handle machine learning workloads.
These upgraded data centers will be powered by GPUs instead of central processing units (CPUs) to enable the transition from general-purpose computing to accelerated computing, opening a gigantic growth opportunity for Nvidia. The good part is that the transition has already begun thanks to AI. Market research firm Dell’Oro Group estimates that sales of general-purpose servers could increase at an annual rate of just 3% between 2023 and 2028. Accelerated servers, on the other hand, are forecast to clock a much stronger annual growth rate of 31% during the same period.
Another big reason the shift to GPU-powered accelerated computing is set to gain momentum is because of energy efficiency. Nvidia points out that the ability of GPUs to perform more work in less time compared to CPUs means that they consume less energy. Data centers reportedly account for 1% to 2% of global electricity consumption, and that rate is expected to double by the end of the decade. So, the adoption of GPUs in data centers is likely to increase thanks to catalysts beyond AI and pave the way for long-term growth at Nvidia.
Nvidia is reliant on the data center business for a huge chunk of its revenue now. However, the company is also gaining traction in the enterprise software market, where customers are using its AI-focused solutions to integrate generative AI into their operations.
From Accenture to Deloitte to Salesforce to SAP, Nvidia has already found multiple customers for its enterprise AI offerings. These customers are using Nvidia’s platform to build copilots and AI agents. As a result, Nvidia now anticipates its AI enterprise revenue will more than double in the current fiscal year, with more growth expected in coming years because of its improving revenue pipeline in this area.
Given that the overall enterprise AI market is forecast to clock an annual growth rate of almost 38% through 2030 and generate $155 billion in revenue, it won’t be surprising to see Nvidia gaining more share in this market. The mentioned catalysts, Nvidia’s AI dominance, and the huge addressable opportunity it is sitting on explain why analysts have raised their revenue expectations from the company for the current and the next two fiscal years.
More importantly, Nvidia seems to be in a position to maintain such healthy growth beyond the next three years, considering the $1 trillion opportunity in accelerated computing as well as the lucrative enterprise AI software market, which could pave the way for more upside in this tech stock.
That’s why investors looking to build a million-dollar portfolio can still consider buying Nvidia as it is trading at 33 times forward earnings right now, which isn’t much more than the tech-heavy Nasdaq-100 index at 31 times estimated earnings.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Accenture Plc, Nvidia, and Salesforce. The Motley Fool recommends the following options: long January 2025 $290 calls on Accenture Plc and short January 2025 $310 calls on Accenture Plc. The Motley Fool has a disclosure policy.
