This trend could signal more gains for Nvidia shares

Nvidia's revenue has reached record levels.

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Man raising both his arms in the air with a piggy bank on his lap, symbolising a record high.

Image source: Getty Images

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Nvidia (NASDAQ: NVDA) shares have soared more than 250% over the past year as the technology company reported triple-digit growth in earnings -- and these measures reached record levels. What's driven Nvidia's success? The company's dominance in the area of artificial intelligence (AI) chips.

Not only does Nvidia hold an 80% share of this rapidly growing market, but the company also offers a wide range of other products and services for companies aiming to launch AI projects. Nvidia reports earnings from these AI-related sales as part of its data center business, and in recent times, that business has been booming. In fact, this trend could signal even more gains for the high-flying stock.

As the chart below illustrates, Nvidia's data center revenue has climbed nearly every quarter sequentially since late 2020 -- and growth really took off in the fiscal year 2024. From the fourth quarter of the fiscal 2023 year to the fourth quarter of fiscal 2024, data center revenue surged more than 400% to a record level of more than $18 billion.

This Statista chart shows Nvidia's revenue by market over the years.

Data source: Statista.

A leader in a growing market

This trend, along with a few other key elements, signals more gains could be on the horizon for Nvidia stock. First, Nvidia is a leader in a market some analysts expect to surpass more than $1 trillion by the end of the decade. Second, Nvidia is increasing its investments in research and development, a move that should help it stay ahead of its rivals.

Finally, Nvidia is at the start of its growth story in AI software, an area chief executive officer Jensen Huang says could represent significant potential.

So, what does this mean for investors? Nvidia's shares trade for about 34x times forward earnings estimates, a level that seems reasonable for a leader in a high-growth market. All of this means that for investors interested in investing in potential AI winners, Nvidia could be a great choice. Even after the stock's gains, it still may have plenty of room to run over the long term. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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