This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Data center spending is projected to rise from $430 billion annually in 2024 to $1.1 trillion in 2029.
- A sizable portion of those expenditures goes toward purchasing GPUs, where Nvidia is the market leader.
- Nearly 90% of Nvidia's revenue now comes from the data center market.
Nvidia (NASDAQ: NVDA) is the most valuable company in the world, with a market cap of about $4.5 trillion as of Oct. 3. Trading at 42 times forward earnings, it's also an expensive stock to buy, which often scares off prospective investors.
While Nvidia will have a hard time matching the 1,320% returns it delivered over the last three years, it could still be a winning stock going forward. Here's why.
Data center spending is projected to soar, which will benefit Nvidia
To meet the ever-expanding computing power needs of artificial intelligence (AI) technology, AI companies are increasing their spending on data centers exponentially. Worldwide data center spending totaled $430 billion in 2024, according to Dell'Oro Group, but it's expected to reach $1.1 trillion annually by 2029.
This is great news for Nvidia, because most of its revenue now comes from the data center market. For the second quarter of Nvidia's 2026 fiscal year, it reported $46.7 billion in total revenue, and 88% of which ($41.1 billion) was related to data centers. This data center-related revenue increased by 56% year over year.
If tech companies continue to invest heavily in data centers, they will need the most advanced graphics processing units (GPUs) to train their AI models. Nvidia is the leading GPU company, with a staggering 94% market share, according to Jon Peddie Research.
It's also worth mentioning that Dell'Oro Group's estimate of $1.1 trillion may now be on the low side. Earlier this year, McKinsey projected that companies will invest $7 trillion in data centers by 2030. Data center spending should continue to drive growth for Nvidia, so it's certainly not too late to invest.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
