NVIDIA Corporation: A Buy for Long-Term Growth

NVIDIA Corporation (NASDAQ: NVDA) has been a key player in the technology space, particularly in artificial intelligence (AI) and gaming. Since my previous coverage, the company has continued its robust performance, beating earnings estimates and experiencing strong growth in data center and gaming revenue.

NVIDIA reported impressive Q4 2024 earnings with an EPS of $5.16, beating consensus estimates by 11.20%. The company’s revenue was $22.1 billion, surpassing estimates by 7.54%. Data center revenue grew by 409% year-over-year, while gaming revenue increased by 56%. These results have been driven by NVIDIA’s dominance in AI chip sales, as well as its innovative offerings in gaming.

Growth Plan

NVIDIA’s growth strategy focuses on maintaining its position as the leading AI chip vendor by continuously innovating and outperforming its competitors. The company recently introduced the Blackwell Platform, a significant advancement in GPU technology, which is poised to enhance performance and energy efficiency. This new platform is expected to launch later this year and could drive future growth.

Competitive Advantage

NVIDIA remains ahead of its peers in terms of performance and power. Advanced Micro Devices (AMD) and Intel Corporation (INTC) have yet to match NVIDIA’s capabilities in AI chips. NVIDIA’s chips, though more expensive, offer cost savings in energy and space, making them a preferred choice for clients.

NVIDIA holds a dominant market share of around 90% in the AI chips market, and it continues to run all MLPerf benchmarks, solidifying its position as a leader in AI technology.

Financial Performance

NVIDIA’s financial performance has been outstanding over the years. The company has achieved significant revenue growth, even before the AI boom. In FY2024, NVIDIA’s revenue grew by 125.85% year-over-year, while net income increased by an extraordinary 581.32%.

The company’s operating and net income margins have expanded, indicating improved efficiency and profitability. Currently, the net income margin stands at an impressive 48.85%, while the operating margin is 54.12%. Additionally, NVIDIA’s free cash flow margin has improved, currently standing at 38.1%.

Industry Outlook and Addressable Market

The data center market, where NVIDIA’s AI chips are utilized, is expected to grow at a CAGR of 6.56% through 2028, reaching $438.63 billion. The AI market, however, is projected to grow at a CAGR of 28.46% through 2030, offering significant growth opportunities for NVIDIA.

In addition to AI, NVIDIA’s gaming segment also presents substantial potential. The cloud gaming market is anticipated to grow at a CAGR of 80.49% through 2029, while the gaming GPU market is expected to grow at 33.84% annually until 2029.

NVIDIA’s addressable market in 2023 stands at around $230.05 billion and is projected to increase to $1.02 trillion by 2030, representing a CAGR of 49.28%. Most of this growth stems from AI, showcasing NVIDIA’s opportunity for expansion.

Valuation

NVIDIA’s fair price estimate is calculated using a discounted cash flow (DCF) model. The present fair price is estimated at $877.27, reflecting a 1.5% upside from the current stock price of $864.02. By 2033, the future price is projected to reach $3,090.27, implying annual returns of 25.8% through 2033.

These estimates are based on NVIDIA’s robust performance and future growth prospects, particularly in AI and gaming.

Risks

While NVIDIA’s stock has experienced significant growth, there is a perception of overvaluation in the market. Any negative news or doubts could lead to volatility in the stock price.

Additionally, the rise of custom AI chips from major clients like Amazon, Alphabet, Microsoft, and Meta Platforms could pose a risk to NVIDIA’s data center revenue. However, NVIDIA’s performance advantages and potential new revenue streams may mitigate this risk.

Conclusion

NVIDIA remains a compelling investment opportunity due to its dominant position in AI and gaming, innovative technology, and strong financial performance. The company’s ability to maintain its competitive edge and capitalize on the growing AI and gaming markets suggests continued growth potential.

Given the current fair price estimate of $877.27 and a future price projection of $3,090.27 by 2033, NVIDIA offers investors an attractive long-term growth opportunity. Therefore, I continue to reiterate my “buy” rating on the stock.