Nvidia’s Stunning Growth: Could It Outperform Again?

Beating the market isn’t new for Nvidia (NASDAQ: NVDA). Over the past two years, this AI chip leader saw its stock price skyrocket by over 170% in 2024 and 238% in 2023, contrasting with the S&P 500’s modest double-digit gains each year. What’s behind such incredible growth? Nvidia has established itself at the forefront of the rapidly expanding AI sector. The current $200 billion AI market is projected to surpass $1 trillion by the end of the decade, positioning Nvidia for significant gains.

Nvidia’s performance in the AI domain is evident as companies heavily invest in technology. The company’s earnings have consistently surged, achieving record levels during recent quarters. This trend has attracted many investors, boosting the stock’s value exponentially. However, after such remarkable results, some investors are concerned Nvidia might see a slowdown or even a decline in the coming year.

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Despite these concerns, I anticipate Nvidia will continue to outperform. Here’s why I believe the company is on track for more success.

Image source: Getty Images.

The Backbone of AI Technology

To understand Nvidia’s ongoing growth story, we need to look at its journey so far. Nvidia designs graphics processing units (GPUs), which serve as the backbone for many essential AI operations like training and inference of models. Customers flock to Nvidia thanks to the speed and efficiency of its GPUs. While these chips are priced higher than competitors’, Nvidia contends they are more cost-effective due to superior performance and efficiency over time.

The company has expanded its offerings beyond GPUs. It has built a comprehensive AI ecosystem that includes networking solutions and enterprise software. These products and services are readily accessible across all public cloud platforms.

This strategic expansion has led Nvidia to report record revenues consistently. In its latest quarter, the company’s revenue soared to over $35 billion. Importantly, Nvidia maintains high profitability, boasting a gross margin exceeding 70% on its sales.

New Revenue Streams with Blackwell

Looking ahead, my optimism stems from an important new product launch this quarter: the Blackwell architecture. Observers may believe Nvidia’s growth has peaked, but the Blackwell launch is set to bring in billions of dollars in revenue immediately.

The Blackwell platform offers seven customizable chips along with various networking options and features that could revolutionize the industry. Major technology firms are eager to adopt this platform, with some even showcasing their partnership on social media. For instance, Microsoft’s Azure announced it was the first to run Blackwell in the cloud.

Nvidia is currently ramping up Blackwell production in its fiscal fourth quarter, expecting several billion dollars in revenue from the launch. Given the strong demand outstripping supply, analysts foresee sustained revenue growth from Blackwell in upcoming quarters. Moreover, Nvidia has committed to maintaining its gross margin above 70%, even during the initial launch phase, when expenses can significantly impact profits.

Investor Sentiment and Expectations

The excitement surrounding the Blackwell launch is likely to keep investor enthusiasm high, which could positively affect Nvidia’s stock prices. If Nvidia succeeds in sustaining its gross margins as planned, it will further bolster investor confidence in its earnings potential moving forward. Additionally, Nvidia has pledged to provide annual updates to its GPUs, a move that should help the company stay ahead of the competition.

Currently, Nvidia stock is trading at 46 times the projected earnings. Although this may seem high, it is justified for a company with a strong earnings history and considerable growth potential in a market poised to reach $1 trillion within a few years.

In conclusion, despite Nvidia’s recent surge, the company’s favorable growth trajectory suggests it could continue to outperform the market in the year ahead.

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*Stock Advisor returns as of December 30, 2024

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.