Developments in artificial intelligence (AI) in early 2023 marked a turning point for chipmaker Nvidia (NVDA +1.49%). The company’s graphics processing units (GPUs), already the top choice for serious gamers everywhere, quickly dominated the data center space, providing the sheer number-crunching capability demanded by AI processing.
Since then, Nvidia’s financial results have been on a blistering run, with a 1,490% increase in revenue and a 4,120% jump in net income. These blistering financial results have driven the stock up 1,410%, providing a windfall for shareholders along the way. Investors had begun to wonder if the results were sustainable, as Nvidia’s market cap has swelled to $5.33 trillion, making it the world’s largest public company (as I write this).
However, Nvidia says it has “greater visibility” heading into next year, and the repercussions for its results between now and then are staggering.
Image source: Nvidia.
The data center boom
To be clear, Nvidia’s GPUs were the linchpin of the company’s success, but it’s the Compute Unified Device Architecture (CUDA) that gives Nvidia its seemingly insurmountable moat. This library of algorithms and software tools ensures that developers achieve the best performance from Nvidia’s processors. With more than 400 pre-built libraries and thousands of specialized tools, GPUs can be adapted for a variety of complex tasks. When coupled with the company’s industry-leading GPUs, the combination is hard to beat.
Nvidia has been crowned king of the data center space, where the vast majority of AI processing occurs. This has fueled the ongoing data center build-out, which is expected to drive $7 trillion in spending by 2030, according to global management consulting firm McKinsey & Company. Nvidia dominates the AI accelerator market, with an estimated 80% to 90% share, according to Silicon Analysts.
When Nvidia reported its Q2 results earlier this month, CEO Jensen Huang broke with a long-standing tradition, giving the company’s first-ever full-year forecast — and the numbers were staggering. Nvidia expects revenue to grow by 70% in 2028, sailing past Wall Street’s consensus of 44% growth. The company noted that if not for the limited availability of memory chips, growth would be closer to 100%.
Running the numbers
Using Huang’s forecast as a starting point, we can run the numbers to estimate Nvidia’s stock price by the end of next year.
At its current rate of growth, Nvidia is on track to surpass Wall Street’s consensus estimate for fiscal 2027 (which ends in late January 2027) of $411 billion. Assuming the company meets its 70% revenue growth target for next year, revenue would be roughly $700 billion in fiscal 2028. Assuming Nvidia can maintain its trailing-12-month profit margin of 64%, the company would generate profits of $447 billion, or earnings per share (EPS) of $18.55.
To be fair, rising memory costs are expected to weigh on margins in the short term, but Nvidia plans to mitigate those pressures with about a 15% price increase in early 2027.
Nvidia currently has a price-to-earnings (P/E) ratio of roughly 28. If its P/E ratio remains constant and the company were to generate the profits estimated above, Nvidia’s stock price is poised to rise 135% to $519 by the end of 2028. For context, that would push its market cap to $12.5 trillion.
If you think that prediction is too bullish, consider this: Gene Muster, Wall Street icon and managing partner of Deepwater Asset Management, believes Nvidia will grow revenue by 90% next year — so the company’s 70% growth estimate might well be conservative.
Today’s Change
(1.49%) $3.23
Current Price
$220.78
Key Data Points
Market Cap
Day’s Range
$216.21 – $221.30
52wk Range
$164.07 – $236.54
Volume
124.7M
Avg Vol
140M
Gross Margin
74.67%
Dividend Yield
0.13%
The fine print
To be clear, this is all fun with numbers, but it does highlight Nvidia’s ramping revenue and profit potential. Of course, any changes to the underlying assumptions could drastically change the outcome. To its credit, Nvidia has consistently beaten both Wall Street’s and its own guidance, so these numbers could well be conservative.
On the other hand, competitors and customers alike are working feverishly to create a viable alternative to Nvidia’s humble GPU, though it remains the top choice for reliable, fast AI processing. So even if Nvidia stock doesn’t double by the end of next year, there’s an undeniable trajectory for growth ahead.
Moreover, at just 24 times forward earnings and 14 times next year’s expected earnings, Nvidia stock is attractively priced. The accelerating adoption of AI continues, and the company’s remarkable track record makes it clear that Nvidia is an opportunity investors shouldn’t sleep on.