The Nasdaq Surge: Fueling Nvidia’s Growth Through AI Innovation
The Nasdaq Composite has experienced remarkable growth over the last few years, propelled by breakthroughs in artificial intelligence (AI), improving economic conditions, a stable political landscape, and recent interest rate cuts by the Federal Reserve. After achieving a return of 43% in 2023, the tech-heavy index has soared roughly 30% in 2024. Based on historical trends, this upward momentum seems poised to carry into 2025.
The current bull market kicked off on October 12, 2022. While each market rally has its unique characteristics, history offers vital context. Typically, bull markets last over five years, and since this rally is just entering its third year, there’s a strong chance the Nasdaq will continue its ascent next year. Additionally, the Nasdaq has posted gains 73% of the time over the past 53 years, suggesting favorable odds for investors. On average, the index has grown 12% in years following positive gains, indicating further potential ahead.
A Renewed Interest in Stock Splits
In recent years, stock splits have regained popularity, encouraging investors to focus on companies that choose to split their shares. Historically, share splits have been accompanied by years of substantial revenue and profit increases. One standout example is Nvidia (NASDAQ: NVDA), which has experienced an astounding 26,920% increase in stock value over the past decade. In light of this impressive performance, the company executed a 10-for-1 stock split earlier this year, adding to a previous 4-for-1 split in 2021.
Despite its stellar growth, Nvidia appears set for continued expansion into 2025. Here’s why.
Image source: Getty Images.
The Driving Force Behind AI Revolution
The adoption of generative AI has surged over the past two years as businesses seek to harness the productivity boosts promised by these innovative algorithms. Generative AI excels at drafting emails, summarizing information, analyzing data, creating original content, and developing computer code—new applications continue emerging daily. Automating tasks not only saves time but also reduces costs, attracting more users to AI technology.
Nvidia has been a pioneer in developing the graphics processing units (GPUs) essential for powering these advancements. These specialized chips offer the computational power needed to bring AI innovations to life through parallel processing, which divides complex tasks into smaller, manageable components. Initially designed for rendering realistic visuals in video games, Nvidia’s chips have found applications in data centers, high-performance computing (HPC), and machine learning, a precursor to AI.
Currently, a significant amount of AI processing occurs in the cloud and data centers, further benefiting Nvidia. The company holds a commanding 98% share of the data center GPU market, according to TechInsights, a semiconductor analysis firm. This strong market position underscores Nvidia’s reputation as the gold standard for AI processing capabilities.
Though competition is always a topic of discussion, Nvidia remains the leader in the industry for now.
Financial Growth Reflected in Numbers
A closer look at Nvidia’s financial results showcases the extent of its growth. The company has achieved triple-digit revenue and profit increases over the previous year. For the third quarter of fiscal 2025, which ended on October 27, Nvidia reported record revenue of $35.1 billion, representing a 94% year-over-year increase. Earnings per share (EPS) reached $0.78, showing a 111% jump. Remarkably, Nvidia generated more sales in one quarter than in all of fiscal 2022.
The primary driver behind this success has been Nvidia’s data center segment, which includes cloud computing, data center operations, and AI chips, surging 112% year over year to $30.8 billion.
Wall Street anticipates that Nvidia’s growth will persist. For fiscal 2026 (beginning in late January), consensus estimates predict revenue of $195 billion—a 51% increase year over year. Some estimates even exceed $269 billion, suggesting over 100% growth. Investing analysts are known for underestimating Nvidia’s potential, so actual results may fall between these forecasts.
Bright Prospects Ahead
Nvidia is poised to start shipping its next-generation Blackwell platform later this year and, according to many, it has another market winner on its hands. Bank of America analyst Vivek Arya believes that the demand for Blackwell is being significantly underestimated, predicting it will surpass Nvidia’s Hopper chips in sales within two to three quarters. He highlights a key gap between Nvidia’s market potential and investor perceptions:
“They really are a system integrator at this point. They’re selling complete racks with all the computing, the networking, the optical resources, the memory, everything thrown in. That is why the revenue monetization opportunity is so much greater than investors appreciate.”
Moreover, Nvidia integrates its software into its wide array of systems, showcasing a continually expanding addressable market.
Despite its considerable growth—183% so far this year—Nvidia’s stock remains reasonably priced. Analysts expect Nvidia to report EPS of $4.42 in fiscal 2026 (commencing in January), positioning the stock at about 32 times its projected earnings, which is attractive given the growth potential.
Is Nvidia a Good Investment for You?
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Bank of America is an advertising partner of Motley Fool Money. Danny Vena has positions in Nvidia. The Motley Fool has positions in and recommends Bank of America and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
