The past couple of years have been a nonstop thrill ride for Nvidia (NASDAQ: NVDA) investors. The company had a market cap of just $359 billion to kick off 2023. Now, its value has soared to more than $3.35 trillion (as of this writing) -- a more than ninefold increase in less than two years.
Driving the parabolic move are the company's graphics processing units (GPUs), which quickly became the gold standard for powering artificial intelligence (AI). This has fueled revenue that jumped 480% and net income that surged 1,270% since the start of 2023.
Investors shouldn't expect growth of that magnitude to continue, but there's plenty of evidence that Nvidia still has plenty of gas in the tank. Many of the world's biggest tech companies continue to invest heavily to upgrade their infrastructure to handle the rigors of AI -- and for most of them, that means stocking up on Nvidia's state-of-the-art processors.
The obvious secular tailwinds aside, there's a crucial detail investors may be overlooking that could signal a big move for Nvidia in 2025. Read on to find out why.
Image source: Getty Images.
A quick recap
For Nvidia's fiscal 2025 third quarter (ended Oct. 27), revenue of $35.1 billion soared 94% year over year, while its adjusted earnings per share (EPS) of $0.81 surged 103%. The results were well ahead of management's forecast, which called for revenue growth of 79%.
Management was clear about what fueled the impressive showing. "The age of AI is in full steam, propelling a global shift to Nvidia computing," said CEO Jensen Huang.
Digging into the results, the top-line move was driven by continued strong demand within Nvidia's data center segment, which grew 112% year over year to $30.8 billion. Much of that revenue was derived from the company's Hopper architecture, the foundation for its H200 Tensor Core GPU, and its GH200 Grace Hopper Superchip -- which are currently powering many of the world's data centers and AI infrastructure.
Although these processors are currently the benchmark, they're about to be supplanted by Nvidia's Blackwell architecture, which represents the next generation of its AI-centric chips.
The company has been working to ramp up production of the Blackwell processors and has previously said it expects to ship "several billion dollars" of these chips in its fiscal 2025 fourth quarter, which ends in late January.
A crucial detail hiding in plain sight
Nvidia has made no bones about the robust demand, with big tech companies jockeying to be among the first to receive these next-generation AI-centric chips. In an interview with CNBC, Huang said the demand for Blackwell was "insane." He went on to say, "Everybody wants to have the most, and everybody wants to be first."
With everyone wanting to get their hands on these chips, supply is currently outstripping demand, and that situation isn't expected to be resolved for several quarters. During theearnings call chief financial officer Colette Kress said, "Blackwell demand is staggering, and we are racing to scale supply to meet the incredible demand." In her written commentary, she added (emphasis mine), "Both Hopper and Blackwell systems have certain supply constraints, and the demand for Blackwell is expected to exceed supply for several quarters in fiscal 2026." For context, Nvidia's fiscal 2026 kicks off in late January.
The resulting pent-up demand could act as a springboard for Nvidia sales heading into next year.
I'm not the only one who thinks so. Beth Kindig, CEO and lead tech analyst for the I/O Fund, believes that in 2025, sales of Blackwell processors will outpace sales of Nvidia's GPUs for 2023 and 2024 -- combined. Kindig says the company's unbridled pricing power could power a minimum of 50% growth in its data center segment next year. That could lead to as much as 70% upside for the stock in 2025.
Chip off the old block
This race is on to increase the availability of its flagship processor, as Nvidia works with its suppliers to ramp up production. As the supply of these next-gen processors increases, so too will the company's revenue, since greater production means more chips available to sell. This will, in turn, supercharge already robust profits, fueling a surge in its stock price.
To be clear, we don't know exactly when the supply constraints will ease, but Nvidia has a vested interest in working through the bottleneck as quickly as possible. Management has historically been conservative with its estimates, so we can probably expect a gradual increase in the supply of these top-end chips, which will be the catalyst for ramping up Blackwell sales as the year progresses.
Some investors have resigned themselves to the fact that Nvidia's growth has already peaked. I believe that view is premature and represents an opportunity for astute investors with a longer-term view. Its premium valuation has already begun to ease. Wall Street is predicting the company will generate EPS of $4.41 in fiscal 2026, which works out to just 31 times next year's sales (as of this writing).
At some point in 2025, the evidence suggests, the supply of Nvidia's best-of-breed Blackwell AI chips will accelerate, which will cause a corresponding increase in sales. I predict that this will be the catalyst that will ignite the stock price, causing it to soar in 2025.
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Danny Vena has positions in Nvidia. 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.
