It's hard to believe that just a few years ago, NVIDIA (NASDAQ: NVDA) was teetering around small- to mid-cap status. The chip specialist now has a market capitalization that classifies it as a legitimate tech giant. NVIDIA's stock is up about 900% over the last three years, and the company sports a total market value (number of shares outstanding multiplied by price per share) of over $100 billion.
After such a rapid ascent, it's important to stay mindful of NVIDIA's market opportunity. In other words, how much further can NVIDIA grow? Before we address this question head on, it might help first to take a look back at the PC market in the 1990s, when Intel (NASDAQ: INTC) was experiencing robust demand for central processing units (CPUs), just as NVIDIA is enjoying today with its graphics processing units (GPUs).
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A look back at history
In many ways, the GPU revolution that NVIDIA is going through today is very similar to the PC revolution for Intel in the 1990s. At the dawn of that decade, Intel faced a huge opportunity to sell CPUs to a growing number of PC users. Because of Intel's relationship with Microsoft, Intel processors became the de facto standard for just about every Windows PC sold. You can see how this impacted Intel's business in the following table:
The growing demand for PCs in the 1990s sent Intel's stock soaring, but by 1999, PC adoption had run its course, and Intel faced a much smaller market opportunity than it did in the early part of the decade. After 1999, Intel's revenue growth dramatically slowed down, only managing to double over the past 18 years. Take a look at how that slowdown affected Intel's stock performance.
So, is buying NVIDIA today like buying Intel in 1991 or 2000? While it's impossible to know exactly where a company is in its growth cycle, we can at least measure a company's revenue against its addressable market to have a general idea of what to expect.
The GPU revolution is in full swing
As with the explosion of CPU demand in the 1990s, a similar wave has already started to build for GPUs. As the world creates more and more data, companies are buying GPUs to process that data much faster using data centers and artificial intelligence. Since NVIDIA is the pioneer of the GPU, it's been primed and ready for this opportunity, much as Intel was for PCs 25 years ago. Check out these NVIDIA numbers.
The graphics specialist's three fastest-growing segments are gaming, data center, and automotive. NVIDIA has been posting impressive growth in all three, but, according to a recent investor presentation by management, there could be more room for growth in the next several years.
NVIDIA's market opportunity by segment
Here's a breakdown of where NVIDIA stands in its three fastest-growing segments, with each segment's total addressable market and trailing-12-month revenue and year-over-year growth rate.
NVIDIA launched its Pascal GPUs in 2016, which kicked off an upgrade cycle for its gaming GPUs. Archrival Advanced Micro Devices (NASDAQ: AMD) has recently tired to one-up NVIDIA with its new Vega GPUs, but benchmark tests of AMD's new Vega graphics cards still leave NVIDIA's GeForce as the most likely card of choice for PC gamers through the end of the year. NVIDIA has already announced its next chip design, Volta, which will take another huge leap ahead in graphics performance.
NIVIDIA has an impressive roster of partnerships with automakers, but the field is getting crowded. Intel now has Mobileye, a formidable self-driving car technology developer, and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) has been using Intel chips in its Waymo self-driving cars. Self-driving cars are a big opportunity, and NVIDIA's numerous partnerships validate its DRIVE PX self-driving car technology. This is going to be a very competitive market, but NVIDIA is as well-positioned as any.
In data center, NVIDIA's position looks solid based on the numerous partnerships it has formed with leading tech companies. Just recently, NVIDIA announced new partnerships with some of the biggest tech companies in China for its data center business. There was uncertainty to what extent AMD's new EPYC chips for data center would steal business away from NVIDIA, but this latest round of partnership announcements shows NVIDIA can hold its ground against tighter competition for the time being.
A good investment, but don't expect huge returns from here
The past few years have been good ones for NVIDIA. However, Intel's recent acquisition of Mobileye, Alphabet's desire to design its own artificial intelligence chip, and AMD's comeback effort will make things more competitive from here. The future is always uncertain, but the opportunity in these markets is wide open, and NVIDIA is well entrenched in each.
Still, investors need to bear in mind that with a trailing P/E ratio of 51, NVIDIA will have to keep growing at high rates to justify its current valuation. I don't expect anything close to another 900% run over the next three years, and with high expectations built in to the stock's current P/E, you can bet the stock will be more volatile than the average stock following the slightest bit of negative news. But after reviewing NVIDIA's three important growth segments, it appears NVIDIA still has enough moneymaking opportunities to make the stock a good investment, especially for Foolish investors who have many years to invest.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool’s board of directors. LinkedIn is owned by Microsoft. John Ballard owns shares of Nvidia. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Nvidia. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.