About a year ago, Nvidia released an earnings report that captured the world’s attention. Since then, the chip design giant’s stock has soared by an astonishing 248%.
On May 23, Nvidia realized my April prediction that a strong quarterly earnings report could propel the company’s stock price past $1,000 per share.
Nvidia — which outsources chip manufacturing — not only beat expectations and raised its guidance, but also announced a 10-for-1 stock split, bought back billions worth of stock, and significantly boosted its dividend.
When the stock split sends Nvidia’s stock price down to around $100 per share, I expect the company could sustain the high growth that sent its stock price soaring for years to come.
Nvidia’s Exceptional Performance and Future Prospects
Nvidia faced a high growth hurdle as the anniversary of its impressive first-quarter 2023 earnings report — which featured a 54% better-than-expected growth forecast for Q2 2023 — approached. To satisfy investors like Warren Buffett who favor stock buybacks and dividends, Nvidia announced a 10-for-1 stock split effective June 7, bought back $7.7 billion of shares, and more than doubled its per-share dividend from four cents to 10 cents based on the current share count, noted the Wall Street Journal.
“We are fundamentally changing how computing works and what computers can do,” Nvidia CEO Jensen Huang said during a conference call with analysts. “The next industrial revolution has begun.”
Nvidia’s Strategic Growth Investments
The most important question for a CEO is: Where will future growth come from? In my book, Disciplined Growth Strategies, I described a canvas on which leaders can paint their future growth trajectories. This canvas consists of five dimensions of growth — new or current customer groups, products, geographies, capabilities, and culture.
In high-tech markets, business leaders must place the right bets on future growth opportunities before their rivals. Since technology product life cycles are short and rivals quickly copy innovations, such bets are vital for sustaining rapid growth.
For Nvidia, the key dimensions of growth are customer group and product. Here are the company’s key bets on each dimension:
Customer Group: Data Centers
Nvidia saw a 427% increase in data center revenue — what CEO Jensen Huang refers to as AI factories, according to the New York Times — accounting for $22.6 billion in revenue. Corporate luminaries including Google, Microsoft, Meta, Amazon, OpenAI, and Tesla are among more than 100 customers purchasing hundreds to 100,000 GPUs from Nvidia. For example, Tesla is using 35,000 H100 chips to help train models for autonomous driving, Nvidia CFO Colette Kress told the Times.
Products: H100, Blackwell, and InfiniBand
Nvidia’s most important AI product has been the H100 — a GPU used to train large language models. As I wrote in April, Nvidia plans to ship a successor — Blackwell — which Huang predicted would generate “a lot of revenue” for Nvidia this year, according to the company’s first-quarter 2025 investment conference call. Nvidia also reported more than tripling in revenue to $3.2 billion from its InfiniBand networking parts, which companies value highly as they build clusters of tens of thousands of chips that need to be connected, noted CNBC.
Under Huang’s leadership, Nvidia’s share of the AI chip industry has reached somewhere between 80% and 95%, as I wrote in my February 2024 Forbes article.
Signs of Nvidia’s Market Power Include:
- High Willingness to Pay: Customers are willing to pay a significant price premium and to wait for over a year to obtain Nvidia’s chips.
- Time Savings Offset High Prices: Nvidia chips are expensive, but they enable companies to save time training LLMs, which more than offsets the price premium.
- Developers Build on Nvidia First: Rivals who copy Nvidia hardware are always racing to catch up. The 2006 launch and ongoing improvement of CUDA — the company’s software for programming GPUs — is the most important reason designers choose Nvidia.
The Biggest Risk to Nvidia’s Continued Success
The biggest risk to Nvidia’s continued stock market rise is the company’s dependence on Huang — who at some point will no longer be the company’s CEO.
As I described in my forthcoming book, Brain Rush, Huang is the rare CEO — accounting for fewer than 0.4% of founders — who can turn their idea into a public company worth billions of dollars — or in Nvidia’s case, trillions of dollars.
He has done a great job in five of the six key leadership tasks that distinguish such leaders:
- Fuel Cognitive Hunger: Huang maintains his desire to learn new things and sustains a healthy paranoia.
- Solve the Right Problem Well: Nvidia provides world-class solutions to unmet customer needs.
- Win and Keep Customers: The AI chip designer excels at winning customers and selling them more products.
- Adapt to Changing Headwinds and Tailwinds: Nvidia quickly shifted design focus from gaming, to blockchain, to generative AI as Huang saw new growth opportunities.
- Invest in New Growth Opportunities: Nvidia built new products and protected their value from rivals with software and partnerships.
The final leadership task is preparing the next CEO. Is Huang developing a successor who could do the CEO job as well or better than he is doing it now? TechNewsWorld argued that Huang would keep serving as CEO for a decade and gradually replace himself with “digital Jensen Huangs.” I can’t help wondering whether this is a joke.
Officially, Nvidia considers succession planning to be important. Nvidia operates a management development and exposure program involving more than “60 senior managers working directly with the CEO to execute corporate strategies,” according to Nvidia’s 2024 annual report. Nvidia also offers executive development programs including “training courses, mentoring, peer coaching, and ongoing feedback.”
How Nvidia’s Post-Split Stock Could Rise 10-Fold
In the year since Nvidia’s impressive May 2023 quarterly report, the company’s stock has risen 248%.
Nvidia stock — after splitting 10-for-1 early in June — could rise from $100 to $1,000 by 2026. This optimistic scenario assumes Nvidia keeps beating growth expectations and raising its forecasts — resulting in a 248% annual increase in the company’s stock price over the next two years.
Optimism is certainly justified, according to one analyst. “I say it’s the most important company in the world, as far as innovation,” Jim Roppel, founder of The Roppel Report, told Investor’s Business Daily.
“Nvidia has managed to leapfrog from one tech trend to another, beginning with video games, then moving to things like automotive applications and now generative AI,” he added.
Generative AI’s productivity benefits could curb inflation — sustaining strong demand for Nvidia’s products. “The major innovation cycle is healthy and thriving,” he told IBD. “I really think this golden goose is ripping. The golden goose is working overtime here.”
Another analyst is less sanguine. Nvidia stock could drop unless it beats expectations by at least $1.5 billion in future quarters, Susquehanna analyst Christopher Rolland wrote in a May 20 client note, reported the Journal.
Another risk to investors? “Moves from competitors—including in-house chip efforts at its own largest customers,” the Journal noted.
Some day the Nvidia bears will be right. That day could be a decade away.
