Nvidia is expected to generate record data center revenue over the next year.
Few companies command the same level of attention as Nvidia (NVDA +1.68%) does on Wall Street today. Over the last three years, investors have witnessed something of a generational shift — a chip designer that was originally focused on enhancing graphics for video games has evolved into a fundamental hardware supplier for artificial intelligence (AI) data centers.
Insatiable demand for Nvidia’s graphics processing units (GPUs) has fueled record sales and profits, which the company has reinvested into developing ever-more-powerful architectures at a rapid clip — creating an unparalleled virtuous cycle.
Naturally, skeptics can’t help but wonder when this positive feedback loop will begin to lose momentum. Thankfully, Nvidia CEO Jensen Huang just provided investors with some details surrounding the company’s outlook.
Spoiler alert: Nvidia is about to kick its operation into a whole new gear, and shareholders should brace for more growth.
In late October, Nvidia hosted its annual GTC Conference in Washington, D.C. During the event, Huang presented his usual master class in marketing as he unveiled the tech specs around Nvidia’s new Blackwell Ultra and upcoming Rubin GPUs.
What investors weren’t anticipating was a financial preview of how impactful these chips are going to be for Nvidia’s business. Huang stated that demand is so high for Blackwell and Rubin that Nvidia now has an order book of $500 billion for these cutting-edge chips. The best part? All of this revenue is expected over just the next five quarters.
Following news of this backlog, investors poured into Nvidia stock — propelling its market cap to over $5 trillion.
It’s important to note that this $500 billion figure Huang offered does not qualify as formal financial guidance. Those forecasts are generally reserved for earnings calls or special press releases.
Another reason investors should take Huang’s commentary with a grain of salt is because, in reality, he was a tad hyperbolic.
Following his comments at GTC, Nvidia’s finance team was swift to paint a more accurate and nuanced picture of the company’s overall data center business.
First, an estimated 30% of the Blackwell chip demand he cited relates to chips that have already been shipped — meaning Nvidia has already recognized a portion of the revenue Huang implied was still in the pipeline.
Moreover, Nvidia’s future data center revenue does not solely hinge on Blackwell and Rubin. Some of the expected sales also stem from Nvidia’s ancillary networking products, such as InfiniBand and NVLink.
Reports suggest that the trued-up backlog figure is closer to $307 billion, which should be recognized over the next year or so — assuming there aren’t any meaningful hiccups in Nvidia’s supply chain or reductions in its key customers’ capital expenditure budgets.
To me, focusing on the exact timing of Nvidia’s recognition of the $500 billion revenue figure is a bit pedantic.
Consider it through another lens: Prior to the AI revolution, Nvidia was generating less than $30 billion in total revenue on an annual basis. Now, just its data center division generates more than that each quarter.
In other words, in three years, Nvidia’s chip empire has become a business fetching half a trillion dollars in demand. That’s an incredible achievement, regardless of precisely when the funds flow into its coffers.
Taking this one step further, I think Huang’s comments shed light on a subtle detail that many investors are overlooking. Namely, sell-side analysts may be underestimating demand for AI infrastructure and how that theme will translate into future revenue growth for Nvidia.
At present, it would appear that Nvidia’s trajectory will outpace Wall Street’s expectations over the next couple of years on the back of explosive data center growth.
Against this backdrop, Nvidia’s forward price-to-earnings (P/E) ratio of 30 looks rather pedestrian. I think Nvidia’s robust sales pipeline will continue to be supported by expanding profitability — lending credibility to the idea that growth investors will continue buying the stock, and could send its valuation soaring to further record levels.
In my view, Nvidia remains a compelling buy-and-hold opportunity for technology investors, and should be considered for a core position in their long-term portfolios.
