This AI Giant Has Climbed 900% Over the Past Five Years. Now Wall Street Expects the Stock to Jump Another 40%.

Investors are always looking for the next game-changing technology, and in recent years, one emerged: artificial intelligence (AI). This exciting technology is already bearing fruit for many, from developers of infrastructure to companies and organizations that have actually started applying AI to their problems.

These players have reported soaring revenue and have seen their stock performance take off, too. One particular company has been leading the way, as it develops a key element needed for AI to function. I'm talking about Nvidia (NASDAQ: NVDA), designer of the world's No. 1 AI chip. Nvidia's graphics processing units (GPUs) are used for crucial AI tasks, such as the training of AI models, and customers flock to them because they are the fastest around.

Nvidia's expertise has appealed to investors, and that's helped the stock soar 900% over the past five years. At this point, you might think Nvidia has passed its growth peak, and that share performance moving forward may stagnate. Wall Street begs to differ, predicting that the stock is on track to advance another 40%. Let's check out what may happen next.

Image source: Getty Images.

GPUs designed for AI

First, a quick look at the Nvidia story so far. This company has been around for more than 30 years, and in its earlier days, it generated most of its revenue by selling GPUs in the gaming market. But as it became clear that these chips could be valuable for other purposes, Nvidia took steps to make that happen. The company created its parallel computing platform, CUDA, and in more recent years, it designed GPUs specifically for AI.

These moves proved to be wise because today, data center business makes up the lion's share of Nvidia's total revenue. In the recent quarter, data center revenue soared more than 90% to a record $75 billion. That's on a total of $81 billion in revenue. Nvidia's profitability on sales also is high, with gross margin topping 70% quarter after quarter.

Nvidia's first-to-market advantage and its focus on innovation have helped it remain the global GPU leader, and the company also has expanded its products and services to offer customers complete AI systems. This, too, has kept earnings climbing.

Nvidia stock, as mentioned, has skyrocketed thanks to the company's AI dominance, but in recent times, investors have worried about the massive levels of tech investment in AI -- and whether the revenue opportunity will support that spending. On top of that, they've also worried about Nvidia losing market share as some of its customers -- such as Amazon and Meta Platforms -- develop their own chips. All of this has weighed on Nvidia stock, which only climbed 7% in the first half.

Targeting a new market

Still, Wall Street is optimistic and sees a 40% gain from today's level over the coming 12 months. Could that happen? It's very possible. Demand for Nvidia's GPUs remains strong, and now the company is targeting a second key market: the central processing unit (CPU) space. These chips are the main processors in computers, and they are proving to be a key tool in the use of agentic AI. The CPU drives the AI as it takes the steps needed to solve a particular problem.

Since agentic AI is seen as the next big AI growth area, strength in CPUs could be big. Nvidia faces CPU leaders Intel and Advanced Micro Devices in this $200 billion market, and I wouldn't expect Nvidia to strip away their leadership in every part of the CPU space. Intel and AMD are particularly strong in the PC market. But Nvidia, an expert in AI, could dominate in the data center market, and that would be a huge move.

All of this may start later this year with the shipping of the Vera Rubin platform and Nvidia's first stand-alone CPU. Nvidia says it expects to generate $20 billion in stand-alone CPU revenue this year. And this, along with Nvidia's ongoing leadership in GPUs, should keep total revenue climbing.

As investors see this new wave of growth ahead, they may once again turn to Nvidia -- particularly at the current dirt cheap valuation of 23x forward earnings estimates. And that's why Nvidia may be on track for another era of explosive gains.

Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Intel, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.