Prediction: This Will Be Nvidia's Stock Price 3 Years From Now

Key Points

• Nvidia stock has been a great performer in recent years.

• The company created a wide moat for itself and has strong growth opportunities ahead.

• The stock has a lot of potential upside in the next three years.

• 10 stocks we like better than Nvidia ›

Nvidia (NASDAQ: NVDA) has been at the center of the artificial intelligence (AI) boom over the past several years, and the stock has benefited greatly along the way. The question now is what happens next.

Investors already know that Nvidia's stock has been a great performer, but can it continue to outperform moving forward? Let's look at why I think the stock is set up to continue to outperform and where the stock price might head over the next three years.

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Image source: Getty Images.

Nvidia's strength and growth opportunities

Nvidia has become the clear market leader in graphics processing units (GPUs), which are the main chips used in data center infrastructure to power AI workloads. The company's dominance, however, comes from more than just designing great chips. Its moat comes from the ecosystem it's built around its chips.

This ecosystem starts with its software platform CUDA, which it developed as a way to let developers program its chips for purposes other than their original intent. It's sometimes easy to forget that GPUs were originally developed to help speed up the rendering of graphics in video games.

While uptake outside of video games was initially slow, Nvidia made the smart move to give away its CUDA software to universities and research groups, which is where early AI development was being done. This also led to an entire generation of developers being trained on its platform, creating a sticky user base. Over time, these developers also built tools and libraries on top of CUDA. That is one of the big reasons why it is difficult for customers to move away from Nvidia, as they would have to rewrite a large amount of code and retrain staff, which just isn't worth it.

Nvidia didn't just stop with software, though; it also turned networking into a huge strength. Nvidia's NVLink technology lets its GPUs act together as a single system, which is critical for training AI models that keep getting bigger. While rivals are trying to develop an open-source competing interconnect system, for now, AI clusters work best when all the chips are Nvidia's GPUs. Its past deal for Mellanox added even more networking power. The company's networking strength was seen last quarter when its networking revenue nearly doubled to $7.3 billion.

Nvidia's wide moat with CUDA and its networking platform led to a remarkable 94% market share in the GPU space in Q2. The company saw rapid growth once again, despite not selling any of its H20 chip to Chinese customers last quarter, which it said was about an $8 billion lost opportunity. Overall, its Q2 revenue soared 56% to $46.74 billion, with data center revenue surging 56% to $41.1 billion. Adjusted EPS, meanwhile, jumped 52% to $1.05.

As long as AI infrastructure spending continues to grow, Nvidia remains in great shape to continue to grow with it. Thus far, all signs point to that growth continuing. Cloud computing companies have been ramping up their AI data center capex to try to keep up with insatiable demand, while AI model companies continue to spend big to build ever-improving large language models (LLMs). Meanwhile, the inference market is growing rapidly as AI usage increases.

Nvidia could also get a boost from being able to once again sell its chips in China. It expects to soon be granted an export license from the U.S. government, which would allow it once again to sell its "dumbed-down" H20 chips to the country. It said it has $2 billion to $5 billion in chips ready to ship once it's allowed to begin selling chips to Chinese customers again.

Where Nvidia's stock could be headed

Nvidia has hinted it could continue to grow revenue at a 50% compound annual growth rate (CAGR) moving forward. The revenue consensus for its current fiscal year ending in January is around $206 billion. At that pace of growth, its 2028 revenue (essentially its fiscal year 2029 ending in January) would be around $700 billion.

If the company's adjusted operating expenses increased an average of 7% quarter over quarter through 2028 (fiscal 2029) and gross margins remained around 73%, and we apply a 15% tax rate on its operating income, Nvidia could generate over $390 billion in adjusted earnings by 2028 (fiscal 2029), or $16 per share, at its current share count of 24.5 billion. Place a 20 times to 25 times price-to-earnings ratio (P/E) multiple on the stock, and its share price would be between $320 and $400 in three years.

Below is a basic model of what its revenue and earnings growth would look like.

Source: Estimates based on author calculations.

If Nvidia could trade between $350 to $400 in three years (it currently trades around $171 a share), that would be strong return, and that is why the stock is still a solid option to buy today.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.