Nvidia‘s (NASDAQ: NVDA) data center business grew at an eye-popping pace inside the previous fiscal 12 months. The company dominates the marketplace for artificial intelligence (AI) graphics cards, which can be being deployed in huge numbers by major cloud computing and AI corporations.
Data center revenue jumped a whopping 217% in fiscal 2024 (ended Jan. 28, 2024) to $47.5 billion. For individuals who’re wondering how much room Nvidia’s data center business has to run going forward, analyst Vijay Rakesh of Japanese investment bank Mizuho recently explained why he believes this segment’s red-hot growth is faraway from over.
Nvidia’s data center revenue could multiply from here
Consistent with Mizuho, Nvidia’s data center revenue in the current fiscal 12 months could jump 87% to about $89 billion. More importantly, Rakesh predicts Nvidia’s data center revenue could jump to $280 billion by 2027 (which might coincide with nearly all of the company’s fiscal 2028).
That means Nvidia’s data center revenue could increase at an annual rate of 56% over the next 4 years, and there’s a superb probability it could indeed hit that mark.
This impressive growth will be driven by the ramp-up of Nvidia’s latest chips. The company is about to launch the H200, B100, and B200 AI chips in 2024 and 2025. Customers are already lined as much as get their hands on these processors.
The H200, as an illustration, will be available from the current quarter. Firms like Amazon, Microsoft, Google, and Oracle are expected to launch cloud instances powered by these chips this 12 months, in accordance with Nvidia. Meanwhile, these cloud computing providers have also expressed interest in Nvidia’s next-generation Blackwell AI processors, which the company claims are set to deliver huge performance and efficiency upgrades over the Hopper architecture it launched a pair years ago.
The Blackwell products must be available “starting later this 12 months,” and the company claims “Amazon Web Services, Dell Technologies, Google, Meta, Microsoft, OpenAI, Oracle, Tesla and xAI” are amongst the many corporations expected to adopt this platform. That will not be surprising as Nvidia is promising its Blackwell platform can allow organizations to “construct and run real-time generative AI on trillion-parameter large language models at as much as 25x less cost and energy consumption than its predecessor.”
With the likes of Microsoft reportedly looking for to spend a humongous $100 billion on constructing massive AI-focused data centers, it is simple to see why Nvidia is expecting robust demand for its upcoming offerings. Management explained on probably the most recent earnings call that it expects “next-generation products to be supply constrained as demand far exceeds supply.”
Nvidia has been bolstering its supply chain with support from its foundry partner TSMC. The waiting time of its current-generation flagship, the H100, has dropped to a few to 4 months from the earlier waiting period of 8 to 11 months. With TSMC aiming to at least double the packaging capability of its advanced chips this 12 months, followed by further expansion in 2025, the provision of Nvidia’s next-generation chips should proceed to boost.
As such, Nvidia could live as much as Mizuho’s prediction for $280 billion in data center revenue in 2027. It’s price noting Rakesh expects the overall AI data center market to generate $400 billion in revenue by that 12 months, which means Nvidia would control 70% of the market, down from its current share of greater than 90%.
How much upside can the stock deliver due to the data center boom?
Nvidia generated $13.1 billion of revenue from its other segments (gaming, expert visualization, and automotive) last 12 months. Assuming these other segments see zero growth and deliver the similar amount of revenue in fiscal 2028, Nvidia’s top line could still reach $293 billion in 4 years based on Mizuho’s outlook.
The stock is currently trading at 37 times sales, a premium to its five-year average sales multiple of 18, due to stunning growth it has delivered thus far 12 months. Assuming Nvidia trades at even 15 times sales in 4 years, its market cap would increase to $4.4 trillion based on the above revenue outlook, doubling from its current level.
But Nvidia’s other segments are frequently not stagnant. The company is growing at a pleasing pace inside the gaming market, which presents one other solid growth opportunity due to AI. So it could even exceed the projections outlined above and deliver stronger upside for investors. All in all, Nvidia’s data center supremacy suggests the stock is built to outperform the market long term, making it a top AI stock to buy even after the stellar gains it has clocked thus far 12 months.
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280 Billion Reasons to Buy Nvidia Stock Hand Over Fist Right Now was originally published by The Motley Idiot