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The world is fast moving towards artificial intelligence (AI)-enabled computing - and Nvidia (NVDA), with its accelerated computing platform and cutting-edge graphics processing units (GPUs), is central to this transition. As Open AI's ChatGPT brought generative AI to an inflection point, Nvidia pioneered accelerated computing by leveraging its GPU architecture to create platforms for AI.
This has benefited the company - and its stock price - immensely. Not only are Nvidia's revenues growing rapidly, its share price has gained over 194% year-to-date.
While Nvidia stock is already trading at impressive levels, several factors suggest that the stock has the potential to double from here. Let’s explore the catalysts that support this optimistic outlook.
Nvidia will benefit from AI leadership
Nvidia is reporting tremendous demand for its accelerated computing and AI platforms, as enterprises are increasingly developing and deploying AI strategies. The company delivered an exceptional second-quarter performance, as its revenue more than doubled year-over-year and increased 88% sequentially.
What stood out is the stellar growth in the Data Center segment. The division’s revenue was up 171% year-on-year, driven primarily by the accelerating demand from cloud service providers and large consumer Internet companies for its HGX platform, which has emerged as an integral part of generative AI and large language models. Furthermore, Nvidia is also witnessing solid momentum in other verticals like automotive, telecom, financial services, and healthcare.
With robust demand in the background, Nvidia continues to add AI-specific features to its GPU architecture to extend its leadership position further. Nvidia has started offering enterprise customers its NVIDIA DGX cloud services directly and through its network of partners, including cloud-based infrastructure and software and services which are used for training and deploying AI models.
The company unveiled a universal data center processor for compute-intensive applications. Further, it announced NVIDIA Spectrum-X, an accelerated AI networking platform. Nvidia has also partnered with leading companies to expand its AI initiatives.
With solid demand for its Data Center platform, initiatives to add new AI products and offerings, and focus on ramping up supply over the next several quarters, Nvidia is poised to deliver massive growth, which will drive its share price higher.
Gaming returns to growth
After witnessing a slowdown over the past year, end market demand in the Gaming segment has returned. The segment’s revenue increased 22% year-over-year, with its GeForce RTX 40 Series GPUs for laptops and desktops driving the demand.
Nvidia developed NVIDIA RTX to offer next-generation graphics and AI to games. This presents a significant upgrade opportunity for the company. For instance, only 47% of its installed base had upgraded to RTX at the end of Q2. Moreover, only 20% of the GPUs have an RTX 3060 or higher performance.
With this in mind, the gaming segment has a strong runaway ahead, and will likely deliver substantial growth.
Nvidia is advancing its autonomous vehicle platform
Nvidia will likely play a pivotal role in shaping the future of transportation as the world gradually shifts toward electric and autonomous vehicles. The company provides a full-functionality, safe, AI-based hardware and software solution for the autonomous vehicles market under the DRIVE brand, which is propelling the segment’s growth.
While macroeconomic headwinds have pressured the automotive market, particularly in China, the long-term prospects remain bright. The company’s NVIDIA DRIVE design win pipeline for the next six years remains strong and stands at around $14 billion, suggesting continued growth in the coming years.
Bottom line
During Nvidia's Q2 conference call, CFO Colette Kress said, “Demand for our Data Center platform for AI is tremendous and broad-based across industries and customers. Our demand visibility extends into next year. Our supply over the next several quarters will continue to ramp as we lower cycle times and work with our supply partners to add capacity.” This implies that the momentum in Nvidia’s business will likely sustain, driven primarily by the Data Center segment, with gaming also contributing meaningfully to its growth.
Overall, Nvidia’s ability to push boundaries and shape the future with its innovative technologies positions it well to deliver strong financials, which could potentially double its share price from current levels.
Echoing similar sentiments, most of the analysts covering Nvidia stock remain optimistic about its prospects. Out of the 35 analysts covering NVDA, 31 have a “Strong Buy” recommendation, three analysts recommend a “Moderate Buy,” and one maintains a “Hold” rating.
That said, the average price target for NVDA is $625.68, implying expected upside of only about 45% from current levels.
