Beating the market isn’t a new feat for Nvidia (NVDA 4.45%). The artificial intelligence (AI) chip giant did this over the past two years, soaring more than 170% in 2024 and 238% in 2023 -- that’s compared to double-digit gains for the S&P 500 in each of these years. Why such an explosive performance? Nvidia has risen to the top in AI, possibly the area of technology with the greatest growth potential ahead. Analysts expect today’s $200 billion AI market to reach more than $1 trillion by the end of the decade, and Nvidia is well-positioned to benefit.
Nvidia already has offered us proof of its ability to win as companies invest in AI. The chip designer’s earnings have climbed in the triple digits during most of the recent quarters, reaching record levels. And this is why investors have piled into Nvidia, helping the stock to skyrocket. Of course, after such a performance, some investors now worry that Nvidia may take a pause or even decline in the new year.
But I predict just the opposite. My prediction is Nvidia is likely to beat the market again -- and here’s why.
Image source: Getty Images.
Powering crucial AI tasks
First, though, let’s consider the Nvidia story so far, to understand why this company’s growth is far from over. Nvidia designs graphics processing units (GPUs), the chips powering many crucial AI tasks such as the training and inferencing of models. The reason so many customers flock to Nvidia is because the company’s GPUs are the fastest out there, helping customers more quickly complete their projects. In fact, Nvidia says its GPUs -- which are more expensive than rival chips -- actually are more economical for customers over the long run because they are more efficient.
Nvidia hasn’t stopped at GPUs, and instead, has built a complete AI empire, offering everything from networking options to enterprise software. And potential customers can easily find these products and services as they’re available on all public clouds.
All of this has helped Nvidia report record revenue quarter after quarter, as mentioned above. In the most recent period, the company’s revenue soared to more than $35 billion. Importantly, Nvidia also is highly profitable on sales, steadily generating a gross margin of more than 70%.
Billions of dollars in Blackwell revenue
Now, let’s consider my prediction. Though some say Nvidia may not continue galloping higher, I’m optimistic about stock performance to come. Nvidia could beat the market again this year -- and for one particular reason. The company is launching a major and much-awaited new product this quarter -- the Blackwell architecture -- and expects it to immediately add billions of dollars to revenue.
Blackwell is a customizable platform with seven different chips, several networking options, and many other features that make it a game-changer for users. The world’s major tech companies have been lining up to get on board, and some already have received Blackwell and proudly posted about it on social media. For example, this fall, Microsoft’s Azure said it was the first cloud to run Blackwell.
Nvidia is ramping production of Blackwell in this current quarter -- the fiscal fourth quarter -- and expects several billions of dollars in Blackwell revenue during the period. And since demand has surpassed supply, we should expect Blackwell revenue growth for many quarters to come. At the same time, Nvidia has pledged to maintain gross margin above 70% even during early launch days, when costs often weigh more heavily on earnings.
Excitement about Nvidia
So, the Blackwell launch and the revenue boost to come should result in ongoing excitement about the stock in the investment community -- and that could push the shares higher. And if Nvidia is able to maintain gross margin as planned, that should add to investor confidence about the earnings picture moving forward. It’s also important to note that Nvidia has committed to annual updates to its GPUs, something that should keep it ahead of rivals.
Today, Nvidia trades for 46x forward earnings estimates. This isn’t cheap, but it’s reasonable for a company with such an earnings track record, potential for more growth ahead, and leadership in a market that could reach $1 trillion in just a few years.
All of this means that even though Nvidia has soared in recent times, this bright growth story could continue -- and Nvidia could be heading for another market-beating year.
