Nvidia‘s (NASDAQ: NVDA) stock soared 16% to set a new all-time high on Feb. 22 following its stellar earnings report. The chipmaker’s Q4 FY24 revenue skyrocketed by 265% year over year to $22.1 billion, surpassing analyst estimates by $1.6 billion. Adjusted earnings per share surged by 486% to $5.16, exceeding the consensus by $0.52.
Throughout the fiscal year, Nvidia’s revenue surged by 126%, reaching $60.9 billion as adjusted EPS climbed 288%. This marked a remarkable turnaround from its flat revenue growth and 25% decrease in adjusted earnings in FY23.
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Nvidia’s market cap has reached $1.96 trillion, making it the world’s third most valuable company after Microsoft (NASDAQ: MSFT) and Apple. The race is on: can Nvidia outpace Apple and dethrone Microsoft by 2025?
The Blazing Trail of Nvidia’s Growth
Nvidia’s recent progress chiefly stems from the explosive expansion of the artificial intelligence (AI) sector. The company’s data center GPUs, renowned for their efficiency in processing complex AI tasks over standalone CPUs, have been in high demand. Major AI giants such as OpenAI, Microsoft, Amazon, Alphabet‘s Google, and Meta Platforms rely on Nvidia’s GPUs. Despite export constraints hampering GPU sales in China, the insatiable market demand persists.
In FY24, Nvidia witnessed a massive shift, with 78% of its revenue originating from data center chips, up from 56% in FY23. This rapid shift reduced its reliance on gaming GPUs, previously the primary revenue source vulnerable to PC market fluctuations and crypto mining volatility.
Forecasting Nvidia’s Worth in 2025
Anticipations suggest Nvidia will sustain its AI dominance amid competition from AMD and the emergence of first-party AI GPUs by tech behemoths like Meta and Google. Analysts foresee Nvidia’s revenue growing at a compound annual growth rate (CAGR) of 35% from FY24 to FY27, with EPS rising at a CAGR of 37%.
Trading at 35 times forward earnings and 18 times current sales, Nvidia may seem pricy, but these valuations align well with its growth trajectory. If Nvidia meets expectations and maintains its valuations, by the dawn of FY27, its stock could potentially be valued at $1,085 per share, commanding a market cap of approximately $2.7 trillion by late 2025.
The Long Shot: Surpassing Microsoft?
Predictions, albeit hazy, imply Nvidia may fall short of eclipsing Microsoft by 2025. Microsoft’s foray into AI through investments in OpenAI and the integration of generative AI tools into its cloud services positions it for robust revenue and earnings growth, with a CAGR of 15% and 17% respectively from FY23 to FY26. Like Nvidia, Microsoft trades at 35 times forward earnings; thus, it could potentially trade around $550 per share with a market cap of $4.1 trillion by early 2026 if it maintains the premium multiple and meets market expectations.
Seeing Beyond Market Capitalization
Nvidia may struggle to catch up to Microsoft unless investors inflate valuations to unsustainable levels or Microsoft falters, prompting a reevaluation as a slower-growth entity. Instead of speculating on these scenarios, investors should focus on Nvidia’s growth trajectory over fixating on market cap. As long as the AI gold rush persists, Nvidia’s pivotal role in supplying tools for this boom paves the way for substantial growth, even amidst future challenges posed by competitors like AMD or emerging first-party chips.
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