Shares of Nvidia(NASDAQ: NVDA) have appreciated 58% over the past year. While that’s an impressive jump, the stock’s returns fade in comparison to the 164% spike in the PHLX Semiconductor Sector index over the same period.
I think that the market hasn’t rewarded Nvidia stock enough for the outstanding growth it has been delivering quarter after quarter. The company’s latest quarterly report hasn’t done much to change its fortunes either, as the stock has slipped despite crushing Wall Street expectations when it released its fiscal 2027 first-quarter results (for the quarter ended April 26) on May 20.
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However, it won’t be long before Nvidia steps on the gas once again. In fact, there is a good chance of this semiconductor stock jumping to $400 in a year. Let’s see why that may be the case.
Image source: The Motley Fool.
Nvidia’s remarkable earnings growth should be rewarded with a premium valuation
Nvidia is a growth stock, meaning its revenue and earnings are growing much faster than the broader market. This was evident from the company’s latest quarterly report. Nvidia’s revenue in the first quarter of fiscal 2027 (which ended on April 26) increased by 85% year over year to a record $81.6 billion.
Its earnings per share rose 140% year over year to $1.87. That’s way above the 13% earnings growth that the S&P 500 index companies are expected to deliver in Q1 this year, according to JPMorgan. What’s more, Nvidia’s earnings exceeded the 45% estimated growth in the tech sector for Q1.
Importantly, Nvidia has outperformed the S&P 500’s earnings growth over the past year.
The good news for Nvidia investors is that its red-hot earnings growth won’t be slowing down any time soon. Its revenue guidance of $91 billion for the current quarter points toward a year-over-year increase of 95% in the top line. Additionally, Nvidia is forecasting a non-GAAP gross margin of 75% for the current quarter, an improvement of 2.3 percentage points over last year. So, it is easy to see why analysts are expecting Nvidia’s earnings to double in the ongoing quarter.
Nvidia’s high growth is driven by its phenomenal market share in the booming artificial intelligence (AI) chip market. Reports suggest that Nvidia controls between 80% and 90% of the AI accelerator market, and its accelerating growth rate makes it clear that it isn’t losing its grip on this lucrative space.
That’s because Nvidia is targeting new growth opportunities emerging in AI. For instance, the need for energy-efficient central processing units (CPUs) in AI servers explains why the company is now offering its server processors as a stand-alone product. The company’s latest-generation Vera server CPU is proving a hit among customers, with Nvidia expecting $20 billion in revenue from this product this year.
This number shows how quickly Nvidia can enter a new space and scale up. The server CPU market has been dominated by AMD and Intel so far. AMD noted that the server CPU market was worth $26 billion in 2025. Nvidia, therefore, is on track to corner a significant chunk of this fast-growing space, which it expects will open up a $200 billion revenue opportunity in the long run.
Additionally, Nvidia is focused on creating new growth opportunities by moving into the nascent yet promising physical AI market. The company has already generated more than $9 billion in revenue from the physical AI market over the past four quarters. For comparison, Nvidia’s physical AI revenue was $6 billion in fiscal 2026, suggesting that the revenue run rate of this business increased by an impressive 50% last quarter.
Physical AI refers to the integration of AI with objects such as robots, drones, and cars, enabling them to make decisions and perform complex actions in the real world. This niche is expected to grow nicely over the long term, as it has the potential to increase factory productivity, assist healthcare professionals, and deliver products via drones.
According to the Future Investment Initiative Institute (a Saudi Arabian state-backed venture), the physical AI market could generate $200 billion in revenue over the next decade, up significantly from just $2 billion to $3 billion today. So, Nvidia isn’t just focusing on the markets it already serves but is trying to define new categories that should ideally allow it to sustain its remarkable growth over the long run.
Analysts are underestimating the stock’s upside potential
Nvidia has a 12-month median price target of $293, according to 70 analysts covering the stock. That suggests potential upside of 37% from current levels. However, investors shouldn’t miss the fact that analysts are expecting an 87% spike in Nvidia’s earnings this year to $8.94 per share, almost 4x the 22% increase that the S&P 500 companies are expected to deliver, according to Yahoo! Finance.
This AI stock trades at 24.3 times forward earnings. That’s only a slight premium to the S&P 500 index’s average forward earnings multiple of 21.8. Nvidia deserves a premium valuation given that its earnings growth will outpace the S&P 500’s average by 4x. Assuming Nvidia trades at a 2x premium to the S&P 500 index after a year — at an earnings multiple of 44 — and its bottom line reaches $8.94 per share, its stock price could jump to $393.
That’s a potential upside of 83% within the next year. However, don’t be surprised to see Nvidia clocking stronger earnings growth this year on account of its move into new markets and the impressive backlog in its core data center business, which should be enough to send this AI pioneer’s share price beyond $400 in the next year.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, JPMorgan Chase, and Nvidia. The Motley Fool has a disclosure policy.
