NVIDIA (NASDAQ: NVDA) Founded in 1993, it went on to create the world's first graphics processing unit (GPU) for computing, media and gaming applications. Now, decades later, the company has put these powerful chips into data centers to develop advanced artificial intelligence (AI) models.
Nvidia CEO Jensen Huang believes data center operators will spend $1 trillion over the next four years to upgrade infrastructure to meet the needs of artificial intelligence developers. Since the data center business currently accounts for 88% of Nvidia's total revenue, this spending will contribute to the company's future success.
However, the semiconductor industry has always been cyclical, so the data center boom won't last forever. That's why it's critical for Nvidia to diversify its revenue streams, and at the CES 2025 technology conference on January 7, Huang had some incredible news for investors on this front.
Nvidia sees the autonomous driving revolution coming. In fact, the company's automotive business has been around for more than two decades, but its revenue has been so meager that it has lived in the shadow of the gaming and data center sectors. That's all about to change, as global car brands like Mercedes-Benz, modern, BYD, Volvo, toyotaand more companies are adopting Nvidia's Drive platform to realize their autonomous driving ambitions.
Drive provides all the internal hardware and software required for the car’s self-driving capabilities. These include Nvidia's latest chip, called Thor, which processes all incoming data from the car's sensors to determine the best course of action on the road. But Nvidia's opportunity doesn't stop there, as it also sells the infrastructure car companies need to maintain and improve their self-driving models so it can stand out from the competition.
Huang said that in addition to Drive, car companies are also purchasing DGX data center systems equipped with the latest Blackwell GB200 GPUs, which provide the computing power needed to continuously train autonomous driving software. Then there's Nvidia's new Cosmos multi-mode base model, which allows companies to run millions of real-world simulations using synthetic data as training material for the software.
Overall, Huang said self-driving cars could be the first multi-trillion-dollar opportunity in the emerging field of robotics. He's not alone, as Cathie Wood's Ark Investment Management believes that technologies such as self-driving ride-hailing could create $14 trillion in enterprise value by 2027, with much of that value attributed to self-driving platform providers - In this case, that's Nvidia.
Nvidia's fiscal 2025 ends at the end of January, but the company's automotive revenue for the first three quarters was $1.1 billion (if we extrapolate from that, full-year revenue is probably about $1.5 billion). Huang Renxun said that by fiscal year 2026, Nvidia's automotive revenue may soar to $5 billion, so the growth rate will be very fast.
Consensus Wall Street forecasts (provided by Yahoo!) indicate that Nvidia's total revenue could be as high as $196 billion in fiscal 2026, so the $5 billion potential contribution from the automotive segment is still relatively small. This is a long-term story that could ensure Nvidia's future growth, but in the here and now, it's all about the data center.
Nvidia has just started shipping its new Blackwell GB200 GPU to customers, but sales are expected to grow quickly. By April, revenue from Blackwell chips could exceed revenue from the previous generation of chips based on the Hopper architecture, underscoring how quickly Nvidia's business is growing.
GB200 NVL72 systems perform AI inference 30 times faster than equivalent H100 GPU systems, so Blackwell will pave the way for the most advanced AI models to date. As a result, in the next year or so, consumers and businesses may have access to the “smartest” artificial intelligence software applications yet (such as chatbots and virtual assistants).
Demand for Blackwell chips exceeds supply, which should support further strength in Nvidia's revenue and earnings in fiscal 2026. Additionally, some reports suggest that a successor to Blackwell called "Rubin" could be launched later this year, which would further solidify the company's presence in the data center GPU market.
Nvidia shares have soared 830% since the beginning of 2023, boosting the company's market capitalization from $360 billion to a jaw-dropping $3.3 trillion in just two years. Despite its impressive performance, the stock may still be cheap.
Currently, the company's price-to-earnings (P/E) ratio is 53.6, which is a discount to its 10-year average P/E ratio of 59. But Wall Street consensus estimates suggest Nvidia may earn $4.44 per share in fiscal 2026, giving it a forward P/E ratio of just 30.6.
In other words, Nvidia stock would have to surge 92% over the next 12 months to reach its 10-year average P/E ratio of 59.
Nvidia regularly beats Wall Street forecasts, so the stock may have greater upside potential. On the other hand, there is some competition from other chip manufacturers, e.g. AMDthe company plans to release a Blackwell competitor within months. As the year progresses, this is a risk investors should be concerned about.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool owns and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends BYD. The Motley Fool has a disclosure policy.
Jensen Huang just had incredible news for Nvidia stock investors Originally published by The Motley Fool