NVIDIA (NASDAQ:NVDA) has been among the largest beneficiaries of the AI boom, rewarding shareholders with massive returns over the past few years. Now the most valuable business in the world, the question is whether or not NVIDIA can keep delivering market-beating returns to its investors going forward. Today, let’s examine NVIDIA’s business prospects to see where the stock could be in three more years.
NVIDIA’s Expected Earnings Growth Rate
Over the coming three years, NVIDIA’s earnings per share are expected to grow at a CAGR of about 38 percent. Using the current trailing 12-month EPS of $4.04 as a starting point, this would have NVIDIA earning about $10.60 per share in three years’ time. While this provides a useful starting point for projecting where NVIDIA shares could end up three years from now, it’s important to recognize that this high expected growth rate is dependent on the continuation of large AI investments and the rapid buildout of new data centers, among other factors.
What Do the Next Few Years Look Like for NVIDIA’s Business?
The defining trend for NVIDIA over the next several years is likely to be the continued rush among tech companies to build AI infrastructure. The data center GPU market, in which NVIDIA holds a commanding lead, is expected to nearly double between 2025 and 2030. Within the next five years, NVIDIA expects to see its addressable market in AI infrastructure expand to $3-$4 trillion.
On top of ongoing demand for GPUs as new data centers are constructed, NVIDIA is also expected to keep rolling out successive generations of improved processors over the coming years. NVIDIA has already launched its new Rubin platform, designed as the successor to the current benchmark Blackwell platform. Rubin, according to NVIDIA, could reduce the number of chips needed for training mixture of experts models while slashing inference token costs. CoreWeave and Microsoft have already been confirmed as customers for the Rubin processors, with Microsoft’s newest data centers expected to eventually scale to multiple hundreds of thousands of Rubin chips.
Despite strong secular growth trends ahead, there could also be some bumps in the road for NVIDIA. Chief among these is the rising cost and scarcity of memory. NVIDIA has already delayed its newest gaming processors due to the global shortage of memory chips, and the same phenomenon could eventually start to impact its AI chip production.
Can NVIDIA Sustain Its High Value Multiples?
Another factor that could bog down NVIDIA’s returns over the next few years is the high valuation from which it is starting. Even after the explosion of its revenues and earnings in the past few years, NVIDIA is still trading at about 47 times trailing 12-month earnings and 25 times sales. The company’s market cap has also reached $4.6 trillion, making it the most valuable business in the world.
The price targets issued by analysts for NVIDIA do, however, still imply significant upside over the next 12 months. Right now, the consensus price for NVDA is $253.88, representing a gain of 33.8 percent from the most recent price of $189.82. Analyst ratings also lean strongly bullish, with 46 buy ratings compared to just three holds and one sell. It’s also worth noting that NVIDIA’s extremely strong profitability likely justifies much of its premium pricing. Over the past 12 reported months, the business has achieved a net margin of 53 percent, exceeded by a 99 percent ROIC and a 111 percent ROE.
Is NVIDIA at Risk If the AI Bubble Bursts?
In recent months, worries have been growing about the circular set of purchase agreements that have built up among leading AI businesses, many of which connect to OpenAI. As the primary provider of hardware for hyperscale AI customers, NVIDIA could be significantly exposed if the air is let out of this bubble-like ecosystem. NVIDIA is even planning to directly invest $30 billion in OpenAI, though this is a significant reduction from the $100 billion it initially had considered putting into the startup behind ChatGPT.
Although these risks are by no means insignificant, it’s worth noting that NVIDIA will likely have a robust long-term position in the AI hardware business due to its extremely strong moat. To begin with, NVIDIA still commands about 92 percent of the GPU market, giving it an extremely dominant position in the core processing hardware behind most AI. NVIDIA’s moat is further supported by its CUDA architecture, a platform that remains the default for programming GPUs for AI tasks. Direct investments like the one being made in OpenAI, meanwhile, could allow NVIDIA to promote continued demand for its hardware.
Where Could NVIDIA Be in Three Years?
Considering its current valuation and the risks that could be forming among AI businesses, it may be sensible to use somewhat conservative assumptions for NVIDIA’s growth. Let’s suppose, for example, that EPS growth over the next three years undershoots analyst expectations and comes in at 30 percent annually, while NVDA’s P/E ratio contracts to 35. Even in this scenario, NVIDIA shares would reach about $310, representing a return of over 160 percent in the coming few years.
The potential returns become even higher if we assume that growth proceeds as expected by analysts and the stock doesn’t experience a significant downgrade in its valuation. Using the expected growth rate of 38 percent and a P/E of 45, NVDA shares could go as high as $475, over 2.5 times their current price. Even this isn’t the most bullish case, as some projections show NVDA at almost $630 by the end of 2028 and over $850 by the end of 2030.
Taking something of a middle ground view, it seems reasonable to suppose that NVDA shares could exceed $400 within the next three years. While not as strong as the growth NVIDIA has delivered in the trailing 3-year period, this relatively conservative outcome would still see the stock more than double from its present price. As noted above, there is also room for considerably more bullish outlooks that could see significantly higher returns.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.