Investors have regained confidence in technology stocks once again in 2023 amid favorable economic data points such as cooling inflation and a resilient global economy. The International Monetary Fund raised its global growth forecast from 2.7% to 2.9%, and that's no doubt aided the Nasdaq Composite index's terrific rise of nearly 16% so far this year.
This impressive jump has rubbed off positively on Nvidia (NVDA 3.40%), with the stock shooting up over 51% in 2023. Investors owning this semiconductor stock in their portfolios may want to continue holding it because there's every reason to think it can sustain its hot rally. Let's look at why that may be the case.
Nvidia is sitting on notable catalysts that could mitigate gaming headwinds
Nvidia faces a major challenge in the form of weak personal computer (PC) sales that have crushed its gaming segment in recent quarters, but there are a few solid growth drivers that may help the chipmaker outpace the market's expectations in 2023.
The first reason Nvidia could deliver more upside this year is the data center business. This segment has been a bright spot for the company in difficult times, generating $11.4 billion in revenue in the first nine months of fiscal 2023 (which ended on Oct. 30, 2022). Its revenue has increased 55% during this period and has also accounted for a similar proportion of the company's top line.
So, the health of the data center business will be critical to Nvidia's growth in 2023. The good news for the company is that the increasing adoption of generative artificial intelligence (AI) applications -- which allow users to write complex essays, create images, and even get answers to questions -- should create more need for the data center chips that Nvidia sells.
Polaris Market Research estimates that the global generative AI market could clock annual growth of 34% through 2032 and generate annual revenue of $201 billion. Given that graphics cards play an important role in accelerating AI workloads in data centers, the rapid adoption of generative AI should unlock a solid opportunity for Nvidia to increase the sales of its data center chips.
It is also worth noting that the sales of data center graphics processing units (GPUs) are expected to grow at an annual pace of over 22% through the end of the decade, according to Grand View Research. Investors shouldn't forget that Nvidia is the dominant player in the enterprise GPU market, with a 91% share, according to IDC, so it is in a prime position to tap the end-market opportunity. Also, the data center business is set to receive a new catalyst this year that may unlock a multibillion-dollar opportunity for the chipmaker.
Another reason why Nvidia shares could sustain their positive momentum in 2023 is because the automotive segment has been stepping on the gas lately. Though still a small part of the company's overall business, automotive has the potential to move the needle in a significant way in the long run.
This segment has generated $609 million in revenue in the first nine months of fiscal 2023, an increase of 38% over the prior-year period. Its outstanding run seems set to continue thanks to a sizable pipeline of potential contracts and a massive addressable opportunity worth $300 billion.
Why it makes sense to remain invested in the stock
The growing influence of the data center business on Nvidia's top line and emerging catalysts such as the automotive segment and the omniverse could help it do better than what Wall Street is expecting from the company in 2023 and beyond.
Analysts are anticipating a 9% increase in Nvidia's top line in fiscal 2024 to $29.3 billion. That number is expected to jump impressively in the next fiscal year.
NVDA Revenue Estimates for 2 Fiscal Years Ahead data by YCharts
Also, Nvidia is forecast to clock 31% earnings growth in the current fiscal year to $4.29 per share and maintain that momentum over a five-year period as well, with an annual earnings growth rate of 21%. So, it would be prudent for existing Nvidia shareholders to continue holding the stock because it looks capable of delivering more upside. What's more, they may even consider adding to their positions if the stock dips in the near term on account of the weakness in the gaming business, as the growth drivers it is sitting on should lead to long-term gains.
