Shares of Nvidia (NVDA) delivered gravity-defying returns in 2023, soaring 240% to deliver 10x the returns of the S&P 500 Index ($SPX) on the year. In the process, NVDA became the first semiconductor designer company to join the ranks of trillion-dollar companies amid the artificial intelligence (AI) boom.
While 2024 has started on a somber note for U.S. tech stocks - sector giant Apple (AAPL) has faced three downgrades within the first half of January - Nvidia has continued its upward trajectory. Up over 16% year-to-date, NVDA is among the top five S&P 500 gainers.
Can Nvidia continue its run higher and eventually hit the milestone of $2 trillion market cap by the next year? Here’s the 2025 prediction for NVDA, plus the key factors that could drive the shares over the next couple of years.
What’s Driving the Rally in NVDA Stock?
The rally in Nvidia stock has been driven by the higher sales of its AI chips. The company posted revenues of $18.1 billion in the most recent quarter, which was over triple what it sold in the corresponding quarter of the prior year, and forecast revenues of $20 billion at the midpoint for the current quarter.
Nvidia's net income also soared to a record $9.24 billion in the fiscal third quarter of 2024 - which, for context, was over 12x the $680 million that it posted in the year-ago quarter.
Nvidia Stock 2025 Prediction
Nvidia is quite optimistic about its business outlook for 2025. During the fiscal Q3 2024 earnings call, in response to an analyst question on whether the company’s Data Center segment (which sells the AI chips) would “grow even in 2025,” CEO Jensen Huang replied in the affirmative.
“Absolutely believe that data center can grow through 2025. And there are, of course, several reasons for that. We are expanding our supply quite significantly. We have already won the broadest and largest and most capable supply chain in the world,” emphasized Huang.
NVDA Stock Target Price 2025
Wall Street analysts are also quite bullish on NVDA, and it has received a consensus rating of “Strong Buy.” Of the 36 analysts covering the stock, 30 rate it as a “Strong Buy,” while 3 say it's a “Moderate Buy.” The remaining 3 rate the stock as a “Hold.”
Nvidia’s mean target price of $646.54 is 13.4% higher than the stock's current price. Its Street-high target price of $1,100, however, implies the shares roughly doubling from these levels.
Can Nvidia’s Market Cap Reach $2 Trillion?
For Nvidia’s market cap to reach $2 trillion, the shares need to rise just about 45%. That price action would not look unreasonable, considering the stellar returns that the stock has delivered over the last decade - a time frame where it has risen at a CAGR of 62%.
While the usual boilerplate disclaimer goes that “past performance may not be repeated in the future,” Nvidia has defied all laws of gravity, and the stock’s CAGR has been 61% and 70% over the last 3-year and 5-year periods, respectively.
That said, even as the momentum looks positive for NVDA stock, we need to analyze the risk-return equation.
What Risks Does Nvidia Face?
A possible plateau in demand for AI chips beyond a couple of years is a potent risk for Nvidia, and so is the launch of AI chips from competitors. As competition increases and rival companies come up with similar chips, the premium pricing for AI chips might also fall.
Rising U.S.-China tensions are also a formidable risk for Nvidia. While the U.S. has restricted the sales of several Nvidia chips to China, reports suggest that arms of the Chinese military have still been able to grab chips like A100 and H100, although exports to China have been banned.
Nvidia has been quite circumspect on its China business, which accounts for between 20%-25% of its Data Center revenues. During the fiscal Q3 earnings call, CFO Colette Kress said, “The export controls will have a negative effect on our China business, and we do not have good visibility into the magnitude of that impact even over the long term.”
In terms of valuation, while Nvidia’s next 12-month price-to-earnings multiple of 28.7x looks mouthwatering - especially considering the expected revenue and profit growth over the next year - the outlook beyond 2025 is somewhat hazy.
That said, I believe that if you are a growth investor looking to play themes like AI, the metaverse, and autonomous driving, Nvidia is one name that should be a part of your portfolio. The company has gotten the better of its competitors over the years, and I have no reason to believe that things will change anytime soon.
As for Nvidia’s market cap reaching $2 trillion, I believe it looks like a matter of “when” and not “if” - and even if the demand for AI chips slows down, the company has several other growth levers to support the next leg of its expansion.
On the date of publication, Mohit Oberoi had a position in: AAPL , NVDA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
