Nvidia (NASDAQ:NVDA) It was the best performing stock in the entire S&P 500. (SNPINDEX: ^GSPC) It will end 2023 with a 239% increase. It’s up another 181% in 2024, but not enough to lead the index. The number one spot is currently held by Vistra.
But the 181% gain is enough to put NVIDIA ahead of all other companies worth more than $1 trillion.
NVDA Chart
Nvidia’s impressive performance comes on the back of a surge in demand for data center graphics processing units (GPUs), the top choice among developers of artificial intelligence (AI) models.
The company is about to begin shipping its next-generation AI GPUs based on the latest Blackwell architecture. This will reset benchmarks across the industry. Nvidia CEO Jensen Huang has said demand for Blackwell is already “insane,” and I think this new hardware could put the company’s stock in the trillion-dollar club by 2025. We expect the stock price to rise again.
Nvidia’s H100 GPU has set the benchmark for AI training and inference. The chip will go into production in late 2022 and will remain a top choice for data center operators like Microsoft throughout 2023. (NASDAQ: MSFT),Amazon (NASDAQ:AMZN)and alphabet (NASDAQ:GOOG)(NASDAQ:Google).
Nvidia then released the H200 GPU, which can run AI inference nearly twice as fast as the H100. However, Blackwell-based GPU systems like the GB200 NVL72 can run AI inference a whopping 30 times faster than a comparable H100 setup.
Additionally, Huang said individual GB200 GPUs will be sold for $30,000 to $40,000 each, which is about the same price that many data center operators paid when the H100 was launched. In other words, Blackwell offers significant cost efficiencies. This means more developers and businesses will have economical access to the largest and most advanced AI models.
In an interview with CNBC in early October, Huang said demand for Blackwell GPUs was “insane.” According to one analyst, Nvidia could ship up to 200,000 GB200 units in the final quarter of 2024, followed by up to 550,000 GB200 units in the first quarter of 2025. This could translate into up to $30 billion in data center revenue over the next year. That one tip alone costs two quarters.
Nvidia’s fiscal year is different from a traditional calendar year. The company is currently in fiscal year 2025, with its fiscal year ending on January 31, 2025 (three months from now). That would start the 2026 fiscal year.
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Wall Street consensus estimates (via Yahoo) suggest that NVIDIA will achieve total revenue of $125.6 billion for the entire fiscal year 2025, representing a 125% increase over fiscal year 2024. The company is expected to follow suit in fiscal 2026 with sales of $179.2 billion. .
The data center division will be responsible for most of that growth. It accounted for 87% of NVIDIA’s total revenue in the second quarter of fiscal 2025 (ending July 28), increasing 154% year over year to a record $26.3 billion.
The incredible demand for Blackwell should lead to further record results in the coming quarters. Microsoft is rumored to be one of the biggest buyers of new GPUs. During fiscal year 2024 (ending June 30), Microsoft made a staggering $55.7 billion in capital spending, most of which went toward AI datacenter infrastructure and chips. The company has already announced that it will increase spending further in fiscal 2025.
Amazon also plans to spend more than $60 billion on AI infrastructure in calendar 2024, and Metaplatforms told investors it will spend up to $40 billion. This number is likely to increase further in 2025.
Image source: Nvidia.
Nvidia’s dominant market share in the data center GPU space has given it incredible pricing power, which has led to soaring profits. The company generated net income of $54.9 billion over the past four quarters, which translates to earnings per share (EPS) of $2.21.
Based on this EPS number and Nvidia’s current stock price of $139.56, the price-to-earnings ratio (P/E) is 63.1. This isn’t cheap at face value, in fact, it’s almost double the NASDAQ-100 Technology Index’s P/E ratio of 32.1.
However, Wall Street expects Nvidia to generate EPS of $4.06 in fiscal 2026, with a forward P/E ratio of 34.3. This may be too cheap for two reasons.
First, NVIDIA stock has averaged a P/E ratio of 58.2x over the past 10 years, consistently above 50x even before the AI revolution took Wall Street by storm.
NVDA PE ratio chart
Second, as fiscal year 2026 progresses, analysts will begin to issue forecasts for fiscal year 2027. If NVIDIA is likely to once again deliver incredible revenue and profit growth, investors may be willing to pay a much higher P/E for the company’s stock. In other words, 34.3 may be too tempting to pass up.
Therefore, if Wall Street’s fiscal year 2026 EPS projections are accurate and NVIDIA trades in line with its 10-year average P/E ratio, that means the company’s stock could rise more than 70% over the next year. means.
No other company in the trillion-dollar club has more projected revenue and profit growth next year. That’s why I think Nvidia is the obvious choice to outperform.
Huang believes data center operators will spend $1 trillion over the next five years building AI infrastructure, and if he’s right, Nvidia’s impressive performance will extend well beyond 2025. It may continue.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Anthony Di Pizio has no position in any stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Berkshire Hathaway, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
“Prediction: This will be the top-performing stock in the $1 trillion club in 2025” was originally published by The Motley Fool
