This investor favourite has been on an epic run over the previous couple of years and exhibits no indicators of slowing.
The Nasdaq Composite has been on hearth over the previous couple of years, pushed larger by the arrival of synthetic intelligence (AI), enhancing financial situations, an uncontested election, and the Federal Reserve Bank’s latest strikes to chop rates of interest. After returning 43% in 2023, the tech-centric index is up roughly 30% in 2024. History suggests the rally will doubtless proceed into 2025.
The present bull market started on Oct. 12, 2022, and whereas each rally is totally different, historical past can present necessary context. Bull markets final greater than 5 years, on common. Since the present rally simply entered its third yr, there is a sturdy chance the Nasdaq will proceed to realize floor subsequent yr. It’s additionally value noting that the Nasdaq has generated beneficial properties 73% of the time, courting again 53 years, so historical past is on the facet of buyers. Finally, the Nasdaq has jumped 12%, on common, in years following constructive beneficial properties, which suggests there’s further upside forward.
Furthermore, there’s been a resurgence within the reputation of inventory splits over the previous few years. As a outcome, buyers are taking a renewed curiosity in firms that break up their shares, as that is traditionally preceded by years of strong gross sales and revenue development. One such firm is Nvidia (NVDA -1.81%). The inventory has gained 26,920% over the previous decade (as of this writing), prompting administration to provoke a 10-for-1 inventory break up earlier this yr — after a 4-for-1 break up in 2021.
Despite its latest run-up, there’s motive to imagine that Nvidia’s development spurt will proceed into 2025. Read on to seek out out why.
Image supply: Getty Images.
Underpinning the AI revolution
The adoption of generative AI has unfold like wildfire over the previous two years as companies are wanting to share within the productiveness will increase promised by these superior algorithms. Generative AI has confirmed adept at drafting and summarizing emails, looking and abbreviating content material, mining knowledge, producing unique content material, and writing laptop code — and new functions are being found daily. Automating and streamlining duties saves customers money and time, driving new customers to undertake AI.
Nvidia pioneered the graphics processing items (GPUs) that make this all potential. These specialised chips present the sheer number-crunching functionality that introduced AI to life. The secret lies in parallel processing or breaking apart computer-intensive jobs into smaller, extra manageable bits. Nvidia first developed these chips to render lifelike photos in video video games however quickly found different functions for this breakthrough expertise, together with knowledge facilities, high-performance computing (HPC), and machine studying — an earlier department of AI.
The overwhelming majority of AI processing is completed within the cloud and in knowledge facilities, one other issue that instantly advantages Nvidia. The firm controls as a lot as 98% of the information heart GPU market, in accordance with semiconductor analyst agency TechInsights. As evidenced by its entrenched place, Nvidia has change into the gold normal for AI processing.
There’s at all times speak of ramping up competitors, however up to now, Nvidia stays the king of the hill.
Paint by numbers
To perceive the magnitude of Nvidia’s rise, a have a look at its monetary outcomes is so as. After producing triple-digit gross sales and revenue beneficial properties final yr, the corporate’s spectacular win streak continues. During its fiscal 2025 third quarter (ended Oct. 27), Nvidia delivered report income of $35.1 billion, up 94% yr over yr. It additionally delivered earnings per share (EPS) of $0.78, up 111%. For context, the corporate generated extra gross sales in a single quarter than it produced for all of fiscal 2022.
The greatest contributor to its success was the corporate’s knowledge heart section, which incorporates cloud computing, knowledge heart, and AI chips, and grew 112% yr over yr to $30.8 billion.
Wall Street expects Nvidia’s development streak to proceed. For its fiscal 2026 (which begins in late January), consensus estimates are calling for income of $195 billion, which might characterize a year-over-year improve of 51%. However, the very best estimate clocks in at greater than $269 billion, which might characterize development of greater than 100%. Wall Street is infamous for underestimating Nvidia’s development, so the fact is probably going someplace in between.
The future’s so shiny, I gotta put on shades
Nvidia will start transport its next-generation Blackwell platform later this yr, and by all accounts, the corporate has one other market chief on its palms. Bank of America analyst Vivek Arya contends that buyers proceed to underestimate the magnitude of the demand for Blackwell, which he believes will likely be outselling Nvidia’s Hopper chips inside two to a few quarters. There’s additionally a giant disconnect between Nvidia’s addressable market and the way buyers understand it:
They actually are a system integrator at this level. They’re promoting full racks with all of the computing, the networking, the optical sources, the reminiscence, all the things thrown in. That is why the income monetization alternative is a lot larger [than investors appreciate].
The analyst goes on to say that Nvidia bundles its software program with these myriad techniques. All these alternatives, taken collectively, assist illustrate why Nvidia’s addressable market continues to develop.
Yet, for all that chance — and regardless of its 183% beneficial properties up to now this yr — Nvidia remains to be attractively priced. Wall Street believes Nvidia will generate EPS of $4.42 in fiscal 2026 (which begins in January). That means the inventory is at present promoting for roughly 32 occasions ahead earnings (as of this writing), which is remarkably low-cost in gentle of the chance.
If I may purchase only one stock-split inventory heading into 2025, it must be Nvidia.
