Nvidia has what it takes to become a $ 1 trillion company. by 2025
Nvidia (NVDA) has long been not only a manufacturer of PC graphics chips, and its stock has shown colossal growth over the past five years. Should investors expect Nvidia’s strong uptrend to continue?
Nvidia is one of the fastest-growing technology companies in the world. The company’s success is confirmed growth in the value of its shares: 1,280% and 5,110% over the past 5 and 10 years, respectively.
Nvidia shares are up more than 120% in 2020 and have grown 50.6% since the start of 2021 close of trading on July 29.
Such strong growth resulted in a high share price, and Nvidia decided to split to make it more affordable.
On July 19, the chipmaker’s share price was another $ 751 per share, but after the July 20 split, trading has already begun at an adjusted price of $ 187.
Nvidia shares do not have a single “sell” rating among investment company analysts. While past growth does not guarantee that the trend will remain the same in the future, analysts believe the company could reach a trillion-dollar market capitalization in the next four years.
Investors should consider the following three key growth drivers.
1. Nvidia’s R&D Efforts Guaranteed to Remain Leadership
Nvidia is arguably the most well-known “name” in the video game industry – the company first invented GPUs (in their current form) and is its most significant source of revenue today (49% of all sales).
The company controls 81% of the global desktop discrete GPU market.
To maintain its Leadership in this competitive market, Nvidia continues to actively invest in research and development to create the latest next-generation processors.
So, only for the first quarter of the 2022 fiscal year (three months until May 2, 2021), Nvidia spent $ 1.15 billion on research and development – more than 20% of total revenue and 31% of gross profit. This suggests that the company is seriously concerned about maintaining the advantage in its technologies.
Nvidia’s total revenues and profits have grown in the last six reporting quarters, with FY2022 in the first quarter of 2022. The company achieved a record $ 2.76 billion in gaming chip revenues, up 106% from a year earlier.
The gaming chip market has seen both up and downtimes, but Nvidia recently “insured” its new graphics chips from cryptocurrency miners, making them unusable for mining (mining).
To leave the GeForce chips for gamers and other buyers, Nvidia has changed the software drivers for its new GeForce TX 3060 graphics chips to limit the hash rate or mining efficiency of cryptocurrency to around 50%.
At the same time, to meet the demand for its chips among miners, Nvidia has released a series of new NVIDIA CMP processors explicitly designed for Ethereum mining. This solution allows Nvidia to protect itself from the volatility of demand in the cryptocurrency market.
2. Nvidia has strong potential in the cloud computing industry
While gaming processors make up the bulk of Nvidia’s business, the data center chip segment is catching up fast. The high power of Nvidia GPUs allows many complex mathematical calculations to at the same time. In addition, it helps render realistic images in video games and enables ultra-fast information transfer in data centers.
Today, Nvidia chips by the three leaders in the global cloud computing industry: AWS from Amazon (AMZN), Microsoft Azure (MSFT), and Google Cloud from Alphabet (GOOGL), as well as many other leading cloud providers.
Precious is the high processing speed of Nvidia GPUs, which helps solve training problems and run artificial intelligence (AI) systems.
Revenue from sales of Nvidia chips for data centers in the first quarter hit a record $ 2.05 billion, up 79% year-on-year and accounting for 36% of total sales.
3. Leadership of Nvidia on the verge of developing a new industry
The segments that currently account for a smaller share of Nvidia’s revenues are processors and autonomous driving platforms. As a result, first-quarter revenues were only $ 154 million.
Autonomous driving is another technology that requires data processing in the blink of an eye, but self-driving cars are still a long way off. Nevertheless, research companies estimate this new market at tens of billions of dollars, and Nvidia is positioning itself as its leader.
Nvidia has partnered with more than 370 auto companies worldwide, and when technology allows mass production of self-driving cars, it will be a new stage of the company’s growth.
Nvidia’s current market capitalization is $ 490 billion, and while no one can predict the future with certainty, Nvidia has what it takes to double that estimate over the medium term.
Given its rapid revenue growth and leadership position in two industries at once – gaming and server chips, as well as the potential for further growth, Nvidia could achieve a market capitalization of $ 1 trillion. By 2025 and take its place among the most valuable companies on the US public market.
