Nvidia stock is poised to continue to outperform the market over the next year, powered by incredible demand for its tech that enables generative AI capabilities.
Nvidia (NVDA 4.89%) stock has been a fantastic performer over the short and long terms. Shares of the artificial intelligence (AI) technology giant have gained 121% so far this year through May 31. Over the last decade, shares have returned 24,140%, which has transformed a $1,000 investment into more than $242,000. These gains have crushed the market, as the S&P 500 index returned 11.3% and 230%, respectively, over these periods.
At some point, Nvidia stock will not be able to keep up its current phenomenal performance. However, the company — and therefore, its stock — still has strong growth potential in at least the near term. Below are my predictions for the company and its stock one year from now, or in late May/early June 2025.
1. Jensen Huang will still be the CEO
Nvidia co-founder and CEO Jensen Huang turned 61 earlier this year, according to public records, so he’s certainly young enough to continue in his role for some time, assuming he stays healthy. It’s obvious from Nvidia’s quarterly earnings calls and interviews with Huang that he’s not only brilliant, but passionate about his work.
2. Nvidia’s GPUs will still dominate the data center AI chip market
Nvidia’s graphics processing units (GPUs) currently dominate the fast-growing market for data center chips to accelerate the processing of AI workloads, including for training and inferencing. (Inferencing involves deploying or running an AI application.) It’s widely estimated that Nvidia’s GPUs have more than a 90% share of the data center GPU AI chip market, and at least an 80% share of the overall data center AI chip market.
The data center AI chip market’s growth revved up big time starting in early 2023 due to demand for technology that enables generative AI. This is the tech that powers the ChatGPT chatbot.
Nvidia will still highly control this market in a year, in my view. Advanced Micro Devices (AMD) and Intel, both of which are relatively new entrants into the data center GPU AI chip market, might take a little market share, but they’re not going to make a significant dent in Nvidia’s dominance.
Why? Because Nvidia has a high moat around this business. It stems from the company’s big head start in this market, which has led to “over 4.7 million developers worldwide using CUDA and our other software tools to help deploy our technology in our target markets,” Nvidia said in its fiscal 2024 annual report issued in February. Using CUDA, developers program Nvidia’s GPUs to be capable of greatly speeding up general and AI computing.
3. And Nvidia’s stock price one year from now?
First, a caveat: Macroeconomic factors can affect any company’s stock price. These include economic slowdowns or recessions, which can cause the stock market to enter a bear market. Even just the expectation of a recession can sink the stock market if the expectation is widespread.
That said, I think Nvidia stock can reach at least $1,700 per share within one year, assuming the U.S. economy remains in at least a minimal growth mode and the stock market remains at least slightly bullish. This price target would represent a gain of at least 55% from the stock’s closing price on Friday of $1,096.33.
As background for my calculation: For many years, Wall Street analysts have consistently and significantly underestimated Nvidia’s earnings growth potential. As a group, they’re getting better but their earnings estimates are still notably too low. For Nvidia’s most recent four quarters, the analyst consensus earnings estimate turned out to be too low by an average of over 17%. The exact percentages starting with the most recent quarter were 9.5%, 11.4%, 19.3%, and 29.2%.
Given this dynamic, it makes sense to me to increase Wall Street’s earnings estimates to develop a price target. Of course, we don’t know by how much analysts will be off in the future. So, the best we can probably do is to assume they’ll be off by about 17% over the next year, just as they were over the past year.
Nvidia stock’s current forward price-to-earnings (P/E) ratio is 40.6. I assumed this ratio will be the same in a year. But I increased by 17% Wall Street’s projected earnings per share (EPS) for the next fiscal year of $35.66 to get $41.72. Multiplying 40.6 by $41.72 gives up $1,694. That’s close enough to $1,700 to round up.
This calculation should be considered rough, or back-of-the-envelope. Much could happen in a year with Nvidia, the competitive environment, and the macroeconomic environment. So, don’t put much stock in my (or anyone’s) 1-year price target. What I do feel highly confident about, however, is that Nvidia stock will outperform the market over the next year.