Key Points
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Nvidia’s entry into server CPUs and the solid demand for its Blackwell and Vera Rubin processors should boost the company’s earnings growth.
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Nvidia’s attractive valuation and the potential increase in its earnings indicate that it could jump by more than 2x within the next three years.
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Nvidia‘s (NASDAQ: NVDA) tepid returns of 19% over the past year may lead investors to think that the artificial intelligence (AI) pioneer’s best days on the stock market are now behind it. After all, the PHLX Semiconductor Sector index has clocked way more impressive gains of 109% during this period.
However, it would be wrong to think that Nvidia stock has peaked following stellar returns that it has clocked in recent years. That’s because the AI infrastructure boom that has supercharged Nvidia’s growth over the past four years isn’t ending anytime soon. More importantly, the company has been diversifying into new AI niches that should strengthen its growth over the long run.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
So, don’t be surprised to see Nvidia emerging from its lull and going on a terrific bull run that could take its stock price beyond $500 by 2029. Let’s see how that’s possible.
Image source: The Motley Fool.
AI-driven productivity gains should ensure strong demand for Nvidia’s chips
According to a survey of 578 respondents carried out by Info-Tech Research Group, 94% of developers using AI tools to develop software have reported higher productivity. Meanwhile, 83% of respondents have witnessed a drop in defects. Even consulting giant PwC estimates that companies using AI are experiencing 40% higher productivity compared to companies least exposed to this technology.
Not surprisingly, capital expenditures needed to set up AI infrastructure are anticipated to hit $1.4 trillion by 2028, according to Morgan Stanley. The investment bank estimates a cumulative $2.1 trillion outlay on AI capex between 2025 and 2027. Nvidia is poised to corner a significant chunk of this lucrative opportunity, given its 80% share of the AI chip market.
The company is already anticipating $1 trillion in chip orders for its Blackwell and Vera Rubin systems in 2026 and 2027. That points to a major improvement over its $193.7 billion data center revenue in fiscal 2026 (which ended in January this year). Another immediate catalyst for Nvidia is its Vera server central processing unit (CPU), which the company believes will open a $200 billion total addressable market (TAM) opportunity.
The chip designer is projecting $20 billion in Vera CPU revenue this fiscal year, which is impressive considering that it has just started shipping this processor as a stand-alone product. Don’t be surprised to see Nvidia’s server CPU business get bigger over the next couple of fiscal years, considering that it is in solid demand from hyperscalers.
The math behind a $500 stock price
Analysts are projecting an 88% increase in Nvidia’s earnings per share to $8.99 in fiscal 2027. This will be followed by robust double-digit growth over the next two fiscal years.
Data by YCharts
Analysts, however, may be underestimating Nvidia’s growth potential, especially considering its solid revenue pipeline for the next two years. However, this AI stock has the potential to jump significantly even if its earnings per share increase to $15.98 in fiscal 2029 (which will end in January 2029). A price-to-earnings ratio of 33 (in line with the Nasdaq-100 index) at that time suggests that Nvidia’s stock price could reach $527. That’s 2.5x where Nvidia stock is right now, making it a no-brainer buy as it trades at an attractive 31.7 times earnings despite its outstanding growth potential.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
