Shares of the "Magnificent Seven" stock are up 23-fold in the last five years.
Just five years ago, Nvidia's (NVDA -0.09%) share price was less than $50. But since then, the leading maker of graphics processing units (GPUs) has found new markets for its chip technology, namely around artificial intelligence (AI), fueling incredible growth for the business. This AI hype has led investors to bid up Nvidia's share price to about $925 to account for the company's surging revenue and growth prospects.
Ultimately, what determines whether a share price goes up or down long term is the growth, or lack thereof, of a company's revenue and profits.
And if Nvidia continues to see this unprecedented demand for its GPUs, the stock could climb even higher.
Here's why Nvidia can keep growing
For a long time, Nvidia primarily sold its GPUs for professional graphics artists and video gamers. But these powerful processors, originally intended to render graphically demanding applications, are also suited to training AI models like OpenAI's famous ChatGPT.
Nvidia's annual revenue has increased nearly 500% over the last five years, mostly driven by its data center business.
Data center revenue, which now makes up 83% of the top line, grew an astounding 409% year over year in the company's fiscal 2024 fourth quarter. Management expects total revenue to increase another 234% year over year in its fiscal 2025 first quarter.
It's unheard of for a company reporting over $60 billion in annual revenue to put up growth rates like this, but enterprise spending on data centers is projected to increase substantially in the coming years. Cloud service providers are investing heavily in the infrastructure needed to provide AI-related services to their customers, and CEO Jensen Huang said earlier this year that the existing $1 trillion of data centers will likely double to $2 trillion before 2030.
Because Nvidia dominates the market for GPUs, in addition to supplying many other components necessary to build these data centers, it's not hard to see the company maintaining its current momentum going forward. That would mean even more upside for shareholders.
John Ballard has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
