Nvidia turned $ 10,000 into $ 250,000. Here’s why it can do it again

If you had $ 10,000 to invest at the start of 2016 and bought shares of Nvidia (NASDAQ: NVDA) using that money, your initial investment would be worth roughly $ 250,000 right now.

NVDA data by YCharts

Nvidia has largely beaten the market over the years with its strong product line, which has helped it attract millions of customers and dominate a rapidly growing space. It now offers more profitable products to existing customers, which allows it to increase average selling prices (ASP) and attract new customers to the fold. As such, Nvidia may repeat – or improve upon – its formidable stock market performance once more in the years to come.

Let’s look at the reasons why.

Nvidia’s exceptional growth can last a long time

Nvidia’s dominance in the GPU (Graphics Processing Unit) market has accelerated its revenue and profit growth over the years. In fiscal 2016, the company reported just $ 5 billion in annual revenue and $ 929 million in adjusted net income. In fiscal 2021, which ended in January of this year, Nvidia’s annual revenue soared to $ 16.7 billion and adjusted net income jumped to $ 6.2 billion. .

This translates into a compound annual revenue growth rate of 27% over the five-year period, while non-GAAP net income has increased by 46% per year. In recent times, Nvidia has exceeded its historic growth. Its revenue for the first quarter of fiscal 2022 jumped 84% year-over-year to $ 5.66 billion, while adjusted net income rose 107% to $ 2.3 billion.

Analysts expect Nvidia’s push to continue this fiscal year, with revenues expected to jump 49% from last year and earnings per share expected to rise 58%. I think Nvidia can maintain its exceptional growth beyond this year for a few simple reasons.

First, Nvidia controls 80% of the discrete GPU market, according to Jon Peddie Research. The discrete GPU market is expected to generate $ 54 billion in annual revenue by 2025, up from $ 23.6 billion last year. Nvidia’s market share puts it in pole position to grab much of the extra income opportunity, and it is unlikely to give ground to a smaller rival. Advanced micro-systems (NASDAQ: AMD) because of its technological advantage.

Nvidia’s flagship RTX 3090 card beats AMD’s latest RX 6000 series cards by an 11: 1 ratio, according to a survey by the game distribution service Steam, Nvidia’s flagship card RTX 3090. What’s surprising is that the RTX 3090 outperforms AMD’s entire lineup despite its steep starting price of $ 1,499, making it significantly more expensive than AMD’s flagship, the RX 6900 XT, which starts at $ 999.

The reason why this may be the case is that Nvidia’s latest RTX 30 series cards outperform AMD’s offerings according to independent benchmarks and are also competitively priced. For example, the RTX 3080 which starts at $ 699 would outperform the more expensive RX 6900 XT. Meanwhile, Nvidia is taking a big lead when it comes to the same-priced offerings. The RTX 3070 Ti which starts at $ 599 is said to be 21% faster than AMD’s RX 6800 which starts at $ 579, indicating that Nvidia offers better value for money.

As a result, Nvidia is charging customers a higher price for its RTX 30 series cards. The average selling price of Nvidia’s RTX 30 series cards reached $ 360 in the first six months of their launch, on the rise. 20% compared to previous generation Turing cards.

With the games business producing 49% of Nvidia’s total revenue in the first quarter, the promising outlook for this segment will play a critical role in helping the company deliver solid growth to investors going forward. However, this is not the only catalyst to watch out for.

Image source: Getty Images

Two more reasons to go long

While Nvidia’s gaming business will form the basis for its long-term growth, its data center and automotive businesses will provide additional catalysts.

The data center segment, for example, generated just $ 339 million in revenue in fiscal 2016. The segment’s revenue for fiscal 2021 jumped to $ 6.7 billion and accounted for 40 % of total income. Nvidia investors can expect the data center business to continue to thrive as the company tackles a substantial opportunity in this space through multiple chip platforms.

Nvidia’s data center GPUs are already a hit among major cloud service providers thanks to their ability to handle artificial intelligence and machine learning workloads. The company is now multiplying opportunities such as data processing units (DPUs) and CPUs (central processing units), thus strengthening its position in the space of data center accelerators.

According to a third-party estimate, the data center accelerator market was worth $ 4.2 billion last year. That number is expected to grow to $ 53 billion by 2025, opening up another huge opportunity for the chipmaker. And finally, the automotive segment should become another happy hunting ground for Nvidia.

The company generated just $ 536 million in automotive segment revenue last year. However, Nvidia claims to have built a pipeline of automotive design gains worth more than $ 8 billion through fiscal 2027, in partnership with several well-known OEMs (original equipment manufacturers) such as Mercedes-Benz, Audi, Hyundai, Volvo, Navistar, and others. So, Nvidia’s automotive business seems ready to hit the gas.

Ultimately, it can be said that Nvidia now has bigger growth engines than in 2016. More importantly, it is in a good position to exploit multi-billion dollar end-market opportunities, making it a Leading growth stock that investors can comfortably buy. and hold out for at least the next five years.