I’ve been following NVDA for a long time. Owned it many years ago but only reentered last August when I saw the data center revenue take off. Note, I bought my position after the stock had run from a low of $108 in October 2022 to more than 4x that. It can be psychologically difficult to buy a stock after a 300% gain. But I looked at what was happening with the numbers and thought about what was going to happen with the business going forward. So now we’re up more than 10x above that October 2022 low. But that low is completely irrelevant as is that price where the stock was a few weeks ago. So now we’re at around $1200 ($120 after the split), and the question remains how is the business going to do. I still have NVDA as my largest allocation position, but I’ve trimmed off about 30% of the shares that I had bought less than a year ago. I will probably continue to trim more shares on the way up, but those trimming decisions have little to do with where I think this business and the share price will go from here. I think it’s going to go up. Call me crazy, but I think the shares could double two more times, maybe three times in the next 5-6 years.
First, people are predominantly in this stock for the data center business that’s fueled by growing demand for AI and high performance computing. The data center business is the part of the business that’s growing like gangbusters so why not look at growth of the data center business separately rather than lumping in the other slow growing segments. This, I think, gives us a better view on where future growth might trend. The data center business revenue looks like this with the fiscal year, data center revenue, sequential growth (DC rev), and YoY growth (DC rev) show in the table below:
| Q1 2023 | 3750 | ||
|---|---|---|---|
| Q2 2023 | 3806 | 1.5% | |
| Q3 2023 | 3833 | 0.7% | |
| Q4 2023 | 3616 | -5.7% | |
| Q1 2024 | 4284 | 18.5% | 14.2% |
| Q2 2024 | 10323 | 141.0% | 171.2% |
| Q3 2024 | 14514 | 40.6% | 278.7% |
| Q4 2024 | 18404 | 26.8% | 409.0% |
| Q1 2025 | 22563 | 22.6% | 426.7% |
| Q2 2025E | 27000 | 19.7% | 161.6% |
| Q3 2025E | 31500 | 16.7% | 117.0% |
| Q4 2025E | 36000 | 14.3% | 95.6% |
| Q1 2026E | 40500 | 12.5% | 79.5% |
| Q2 2026E | 45000 | 11.1% | 66.7% |
| Q3 2026E | 49500 | 10.0% | 57.1% |
| Q4 2026E | 54000 | 9.1% | 50.0% |
Just putting in some estimates for data center revenue if it grows sequentially by $4.5B every quarter through Q4 2026 (is January 2026 or seven quarters from now) shows YoY growth maintaining at a high rate through this fiscal year and the following fiscal year. I think there is upside to these numbers if supply can be increased by more. I’m not worried about demand not being there for several reasons:
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We have information that all the hyper scalers and others are increasing CapEx spend on NVDA. TLSA has indicated $3-4B this year. X.ai has indicated $3B this year and $10B in 2025. Listen to the earnings calls of META, MSFT, GOOL and AMZN.
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If data center buildout is only 5% complete as Jensen has indicated, then after three more doublings we’re only at 40% complete. If NVDA maintains 80%+ market share then a 40% buildout is only 50% of NVDA’s potential. And data center demand won’t stand still but will keep growing so the TAM will exceed 100% of today’s number.
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There is strong evidence that demand exceeds supply. H200 will be available in a couple of months, and B100 will be available in about 7 months. So why are H100s still selling out when chips that are a lot better will be available in weeks? I think it’s because customers need compute and they need it yesterday (see #4 below for why I think this is the case); so they say “give me all the H100s you can give me and I’ll also take the H200s and the B100s”. I think this will continue through 2027 with the B200s, the R100s, and the R200s all of which are already in either full production (H200 and B100) or full development (B200, R100, and R200) as per Jensen’s keynote at Computex last week.
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Why are customers so desperate to get all those GPUs? “The more you buy, the more you save.” is true. Also, the hyper scalers are investing $1 today (for GPUs), and they will get $4-5 return on those GPUs over the next several years. ROI is there. But I think the most important reason for this arms race or mad scramble isn the following: the first company or country to get to general artificial intelligence will have such an advantage over others as the world hasn’t seen before. For companies, it will be the revenue generating opportunities related to AI which will dwarf any advantage the world of business has ever seen. Just compare humans against the next highest intelligent creature (I think it’s the orangutan). Humans have accomplished many billions time more than orangutans. AI will be to humans as humans are to orangutans. Yes, I think AI is a way bigger deal than electricity, the transistor, the internet, and mobile. But each of these previous innovations is a prerequisite (maybe not mobile so much) to making AI possible and useful. I think AI is happening faster than anything before, and since people have a hard time thinking in exponential scales, it’s hard for most to imagine how big AI will get and how fast that can happen.
So, NVDA growth is slowing as Q2 FY2024 was the inflection point and that quarter is now being lapped (next NVDA earnings report). But even if NVDA’s data center grows only linearly on a sequential basis (as I’ve shown in the above table), we still get amazing growth this fiscal year and next. Am I selling my position? No way Jose!
GauchoRico