Where will Nvidia shares be in 1 year?

A lot is in store for the chipmaker over the next 12 months.

| More on:
two older men wearing colourful tropical patterned shirts and hats like tourists puzzle over a map one is holding while he other holds up a hand as if indicating he doesn't know where they are going.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The roller coaster doesn't seem to be stopping as Nvidia (NASDAQ: NVDA). The centerpiece of the artificial intelligence (AI) boom has also been the main driver of the S&P 500 index's performance since late 2022. This year alone, roughly a quarter of the index's 20% rise can be attributed to the chipmaker.

That's a lot of weight on Nvidia's shoulders. Investors are hyperfocused on its every move, seeing it as a bellwether for the market at large. The good news for investors, then, is that the AI giant is charging full steam ahead. It will face challenges and overcome obstacles, but Nvidia has several catalysts that could boost its bottom line in the not-too-distant future. What will the next year bring for Nvidia?

Demand is still extremely high for its bread and butter

The uber-powerful chips the company designs and sells are the backbone of its success. That's why investors were spooked when the company announced its first real snafu since the AI boom took off. Production issues were discovered in the newest version of its AI chips originally set to begin rolling out in the third quarter. These chips, dubbed Blackwell, are now expected to hit the market a quarter later in Q4. Luckily, this delay is shorter than some feared, and the company assured investors that the delay had been accounted for in its guidance.

Critically, any loss from Blackwell chips in the short term is being compensated for by the still extremely high demand for its current-generation Hopper chips. When Blackwell does begin rolling out, the company expects the demand to be even stronger. As CEO Jensen Huang put it, "The anticipation for Blackwell is incredible."

Now, while Nvidia has generally delivered on its promises in the past, it's a good idea to take a company's promises with a grain of salt. Company brass was a little light on details around the delay, and there is always a chance that things won't go as planned. If more delays are announced, it could spell trouble for Nvidia. Still, I don't see any reason to believe that will happen here or that this will develop into a major problem.

Nvidia makes more than its flagship chips

Nvidia's data center segment, under which its AI chips fall, is by far its most lucrative. I think the chart below puts into perspective just how important the segment is for the company.

NVDA Revenue (TTM) Chart

NVDA Revenue (TTM) data by YCharts

See that incredible inflection point in 2023? That is almost entirely coming from its data center growth.

Now, its chips are undoubtedly the heart of this, but it's not the only product the company offers in this segment. Nvidia aims to be a full-service provider of data center hardware and software. Nvidia has a platform called Spectrum-X that, although launched as recently as last year, has already seen a big uptick in sales.

The platform is a networking solution that allows customers to keep up with the intensive networking demands of AI computing without abandoning ethernet. Ethernet -- a networking technology -- has been the standard for decades and is used in almost every data center in the world. As Nvidia continues to build ever more powerful chips, existing ethernet networks are struggling to keep up with the flow of data, creating a bottleneck.

This could mean having to retrofit a data center, removing the miles and miles of ethernet cables and associated hardware, and replacing it with faster technology. Remember, these data centers are massive -- we're talking the size of multiple football fields in some cases -- so you can imagine this would be incredibly costly. Spectrum-X allows the bones of these networks to remain, upgrading only critical parts of the network infrastructure. This is a huge cost saver for data centers.

Nvidia leadership was excited by Spectrum-X in the company's latest earnings call. CFO, Colette Kress reported that Nvidia's "Ethernet for AI" -- of which Spectrum-X is a primary part -- revenue "doubled sequentially with hundreds of customers adopting our Ethernet offerings" and that the platform "has broad market support from OEM and ODM partners." The company expects Spectrum to be a multibillion-dollar product line in a year.

Beyond this, Nvidia is rolling out new software to help companies build custom AI solutions and is pushing further into the automotive industry, a segment that could be massive in a few years' time once driverless technology matures. In the short term, however, this will still be a significant revenue source as AI is integrated into car "infotainment" systems. This is already happening, but expect to see more car companies advertise this system in the coming year.

Nvidia is on the right path

Without getting specific about a price target, I think Nvidia will outperform the market over the coming year. Yes, at a price-to-earnings ratio (P/E) of 56.07, it does carry a premium, but this is pretty much at or below where it has been trading since the beginning of 2020. Furthermore, its forward P/E is currently sitting at 34.2, slightly below its average since the AI boom took off. These figures look fine to me considering Nvidia's growth potential.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Should you invest $1,000 in Nvidia right now?

Before you buy Nvidia shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Nvidia wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 9 January 2025

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

a wide-mouthed man looks scared as he grips the wheel of a car while driving in a murky environment.
International Stock News

Down 18% from all-time highs, is Tesla stock a buy now?

Tesla's Q4 delivery and production figures missed Wall Street's expectations, and shares have been selling off on the news.

Read more »

Three people jumping cheerfully in clear sunny weather.
International Stock News

Billionaire Bill Gates has 66% of his foundation's $44 billion portfolio invested in 3 phenomenal US stocks

Some of the biggest holdings in the Gates foundation's trust are surprisingly non-tech.

Read more »

A happy elderly man wearing a red cape smiles as he jumps up like a hero from a massage table.
International Stock News

Can a $25,000 Iinvestment in Nvidia stock today turn into $1 million by the time you retire?

Nvidia is one of the most valuable companies in the world today, with a market cap of $3.4 trillion.

Read more »

Two boys in business suits holding handfuls of money
International Stock News

Prediction: This artificial intelligence development will be a once-in-a-generation opportunity for Nvidia

Nvidia has the chance to generate growth as companies apply AI in the real world

Read more »

A little girl with red hair runs excitedly with a rocket strapped to her back, trying to launch.
International Stock News

1 Warren Buffett stock that could go parabolic in 2025 and beyond

There's one laggard in the Berkshire Hathaway portfolio that can turn things around this year. Bonus: It also happens to…

Read more »

A woman stacks smooth round stones into a pile by a lake.
International Stock News

If I could buy only 1 'Magnificent Seven' stock in 2025, this would be it

2024 was another all-around terrific year for the Magnificent Seven.

Read more »

A boy holds on tight as his gaming console nearly blows him away.
International Stock News

Nvidia's new graphics cards double down on AI

With broad adoption of Nvidia-specific features, these AI innovations should keep the company on top.

Read more »

A person is weighed down by a huge stack of coins, they have received a big dividend payout.
International Stock News

5 US stocks Warren Buffett is betting big on for 2025

These five companies -- one of which is near and dear to the Oracle of Omaha's heart -- stand out…

Read more »