While Nvidia’s impressive data center growth got all the attention last quarter, there’s another part of the business where AI is starting to bring about change.
NVIDIA (NVDA -0.79%) On May 22, the company reported another impressive financial result for the first quarter of fiscal 2025 (the three months ending April 28). As expected, the company’s data center division was the star of the show.
Surging demand for Nvidia’s artificial intelligence (AI) chips helped the company’s data-center revenues rise 427% year over year to $22.6 billion last quarter, accounting for 87% of sales. The segment has powered a spectacular rally in Nvidia’s shares over the past year and a half, and it could remain a big moneymaker for the company thanks to the rapidly expanding opportunity within AI chips.
But there’s another area where Nvidia is seeing benefits tied to the adoption of AI. Let’s take a closer look at that business and why it could mean big things for the company in the long term.
Nvidia’s gaming business is benefiting from AI
Nvidia’s gaming revenue rose 18% year over year to $2.6 billion last quarter, accounting for 10% of the company’s total sales. While the size of Nvidia’s gaming business dwarfs the revenue it makes from selling data-center chips, it’s likely to be a bigger contributor in future with the advent of AI-enabled personal computers.
Nvidia executives said during its latest earnings call that its RTX-class PC graphics processing units (GPUs) are equipped with CUDA Tensor Cores and therefore can run generative AI applications. Nvidia noted that its RTX GPUs have an installed base of over 100 million, and that its software framework enables these users to run large language models (LLMs).
For example, Nvidia Microsoft It enables AI-specific performance optimizations on Windows, allowing LLM to run up to 3x faster on RTX-equipped PCs. These moves by Nvidia to target the AI PC market could pay off big in the long run, as demand for AI-enabled PCs is expected to increase significantly.
According to IDC, AI PC shipments could reach 50 million in 2024 and more than triple to 167 million in 2027. With AI PCs expected to account for 60% of PC shipments in 2027, it wouldn’t be surprising to see this market continue to grow steadily thereafter. Rising AI PC shipments should ideally necessitate more Nvidia GPUs so users can run AI models and applications locally on their computers.
Notably, 53% of Nvidia’s installed base uses its RTX class GPUs. The company puts its RTX installed base at around 100 million, meaning roughly the same number of users are using older graphics cards. AI PC adoption will likely encourage these users to upgrade to newer graphics cards, which should provide a solid growth opportunity for Nvidia’s gaming business, which controls 80% of the PC graphics card market.
Meanwhile, Nvidia also dominates the datacenter GPU market, estimated at over 90%. This means Nvidia dominates the overall discrete GPU market. In the long term, the company is well positioned to grow at a tremendous pace, with the overall GPU market expected to grow from $42 billion in 2022 to $773 billion in 2032, according to Precedence Research.
Stronger growth expected
Nvidia’s strong quarterly report, the company’s impressive share of the GPU market in both servers and PCs, and the multi-billion-dollar revenue opportunity that this market offers explain why analysts have raised growth expectations for the company.
NVDA Revenue Forecast Data for Current Fiscal Year by YCharts
The chipmaker is expected to finish fiscal 2025 with more than $120 billion in revenue, nearly double its fiscal 2024 revenue. Nvidia’s revenue is expected to continue to grow in the coming years, and it wouldn’t be surprising if the company achieves growth that exceeds analyst expectations thanks to opportunities in gaming and datacenter GPUs.
So investors looking to buy growth stocks could still consider buying Nvidia, as the company’s surge appears sustainable.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool invests in and recommends Nvidia. The Motley Fool has a disclosure policy.
