Nvidia‘s (NASDAQ: NVDA) stock surged 16% to hit a record high on Feb. 22 following a stellar earnings report. The chipmaker’s revenue for the fourth quarter of fiscal 2024 soared by 265% year over year to $22.1 billion, surpassing analysts’ estimates by a hefty $1.6 billion. Its adjusted earnings also skyrocketed, leaping by 486% to $5.16 per share and beating consensus forecasts by $0.52.
Over the full year, Nvidia’s revenue spiked by an impressive 126% to reach $60.9 billion, accompanied by a 288% surge in adjusted EPS. This robust growth marked a significant departure from the company’s prior flat revenue and earnings performance in fiscal 2023.
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With a 280% surge in the last year, Nvidia’s market cap now stands at $1.96 trillion, ranking it as the world’s third most valuable company behind Microsoft (NASDAQ: MSFT) at $3.06 trillion and Apple at $2.85 trillion. The burning question arises: can Nvidia outpace Apple and dethrone Microsoft by 2025?
The Rise and Rise of Nvidia
Nvidia’s recent growth spurt finds its roots in the explosive expansion of the artificial intelligence (AI) market. The company’s top-tier data center GPUs have become pivotal in processing intricate AI tasks more efficiently than standalone CPUs, resulting in a rush among firms to secure these chips for keeping pace with the growth of AI platforms like OpenAI’s ChatGPT.
Leading AI-centric companies worldwide, from OpenAI and Microsoft to Amazon, Alphabet‘s Google, and Meta Platforms, rely on Nvidia’s GPUs. Although export constraints in China posed challenges for Nvidia’s GPU sales, the market demand continues to surpass the available supply by a substantial margin.
In fiscal 2024, Nvidia saw 78% of its revenue generated from data center chips, a significant leap from the 56% figure in the previous fiscal year. This rapid diversification curtailed its reliance on gaming GPUs, formerly its revenue backbone, susceptible to PC market fluctuations post-pandemic and volatile crypto-mining trends.
Forecasting Nvidia’s Trajectory for 2025
Optimists envision Nvidia’s continued dominion over the AI market, notwithstanding competition from rivals like AMD entering with more affordable data center GPUs and tech giants Meta and Google venturing into in-house AI GPU development. Analysts anticipate Nvidia’s revenue to grow at a compound annual growth rate (CAGR) of 35% from fiscal 2024 to fiscal 2027, accompanied by an EPS rise at a CAGR of 37%.
Nvidia’s current stock, trading at 35 times forward earnings and 18 times this year’s sales, may not seem cheap. However, considering its growth rates, the valuations appear reasonable. If Nvidia sustains these valuations, meets analysts’ predictions, and maintains a 35 times forward earnings ratio by early fiscal 2027, its stock could be valued at around $1,085 per share, with a market cap nearing $2.7 trillion by late 2025 – marking close to a 40% gain from present levels.
Can Nvidia Outshine Microsoft?
Long-term estimates should be viewed cautiously, with predictions hinting that Nvidia may not surpass Microsoft in value by 2025. Microsoft has adeptly tapped into the AI market’s explosive growth through strategic investments in AI and integration of generative AI tech into its cloud offerings. Analysts foresee Microsoft’s revenue and earnings growing at a CAGR of 15% and 17% respectively from fiscal 2023 to fiscal 2026.
Likewise, trading at 35 times forward earnings, Microsoft could potentially be valued around $550, boasting a market cap of $4.1 trillion by early 2026 should it uphold the same premium multiple and meet financial projections.
Gauging Nvidia’s Prospects Beyond Market Cap
Bottom-line: Overtaking Microsoft hinges on Nvidia’s valuations skyrocketing unsustainably, or Microsoft fumbling and being revalued as a slower-growth entity. Rather than mulling over speculative scenarios, investors should fixate on Nvidia’s growth potential rather than its market cap. The company remains at the forefront of the AI boom, offering the necessary tools for this technological gold rush, with ample expansion opportunities ahead before impending headwinds from competitors kick in offering a reality check.