Matt Frankel, The Motley Fool
5 min read
In This Article:
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Nvidia is the largest publicly traded company in the market, but that doesn’t mean it can’t still produce strong returns.
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The business has more growth potential than you might think.
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Nvidia’s capital allocation could drive returns over the long term.
Nvidia (NASDAQ: NVDA) is the largest publicly traded company, with a market cap of about $3.8 trillion on Friday afternoon, and a stock price that's just below its all-time high.
Nvidia's growth story has been nothing short of extraordinary. Revenue has grown by nearly 400% over the past two years as AI investment activity has exploded, and that's after an already extremely impressive multidecade history.
If you don't already own Nvidia, is it too late to invest? With an estimated 95% share of its most important end markets and nearly $150 billion in revenue over the past four quarters, it's easy to understand why Nvidia's upside from here might appear limited. But I'd argue the opposite. Not only do I think Nvidia's revenue could get much larger from here, but the stock could produce market-beating returns for many years to come.
Nvidia has four main business segments: data center, gaming, professional visualization, and automotive.
The data center segment is by far the most important. In simple terms, AI-focused applications require a tremendous amount of data processing ability, and Nvidia's data center accelerator products are widely considered to be the gold standard. As mentioned, the company has a dominant (estimated) 95% market share. And the industry itself is growing rapidly.
Over the past year, Nvidia's data center segment sales tripled, and the $120 billion global market for data center accelerators is expected to roughly double over the next five years. Data center capital spending -- mostly by large tech companies -- is expected to reach $1 trillion annually in just three years, compared to $500 billion today. In other words, if Nvidia simply maintains its dominant market share, the largest and most critical part of its business could double or more in size by 2030.
The company's other segments have lots of room to grow as well. The automotive segment is a big opportunity, as advanced autonomous vehicle technology is still in the early stages of evolution, and Nvidia already has 20 of the top 30 EV manufacturers on its customer roster. In fact, GPUs for automotive applications is expected to be a $45 billion market by 2030, and Nvidia also develops software systems, safety systems, and more for automotive applications.
