VALUATION HIGHLIGHTS
- Compute & Networking constitutes 95% of the Trefis price estimate for nVIDIA's stock.
WHAT HAS CHANGED?
Q4 FY'25 Earnings
Nvidia posted a better-than-expected set of Q4 FY'25 results amid strong demand for its graphics processing units used in artificial intelligence applications. Revenue came in at $39.33 billion, up 78% year-over-year, while adjusted net income rose 72% to $22 billion.
Advent of more resource-efficient AI models
China's DeepSeek model, which was launched in January, gained attention for emphasizing software-driven optimization over hardware dependency, potentially reducing the need for GPUs. The company claims it spent just $5.5 million to train its V3 model, a fraction of the hundreds of millions reportedly spent by firms like OpenAI. With DeepSeek's model being open source, big tech companies may take inspiration to use similar strategies to cut costs. If widely adopted, this could further dampen demand for AI computing power.
Note: Nvidia's FY'25 ended on January 26, 2025.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Nvidia's value that present opportunities for upside or downside to the current Trefis price estimate for Nvidia:
Compute & Networking
- We currently forecast Nvidia's Compute & Networking
revenues to increase from $116 billion in FY 2025 (year ended January 26, 2025) to $330 billion by the end of the Trefis forecast period. However, if sales grow to over $400 billion by the end of our review period, driven by stronger demand from data centers, automotive, and embedded customers, we could see a 15% upside to our price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for Nvidia at the top of the page.
BUSINESS SUMMARY
While Nvidia is best known for its graphics processing units, which are essentially high-performance processor that generates realistic graphics for gaming on computers, the company expanded to several other large and important computationally-intensive areas. Nvidia's GPUs are now much sought after for workloads including artificial intelligence, autonomous driving, as well as cryptocurrency mining. The company is a fabless semiconductor vendor, as it outsources its fabrication to specialized foundries. The company's products are now used in gaming, professional visualization, data center, and automotive markets.
SOURCES OF VALUE
We believe that the Compute & Networking segment is the biggest driver of Nvidia's value. The division grew by over 2x in FY'25, emerging as Nvidia's biggest business segment with over $110 billion in revenue. Moreover, we believe the segment has stronger long-term growth potential as well, given that demand is driven by important trends in the computing industry - including the deployment of artificial intelligence capabilities by cloud vendors, the development of autonomous driving technology, and cryptocurrency mining.
KEY TRENDS
Surging Demand For Generative AI applications
Generative artificial intelligence (AI) has captured the imagination of the world following the launch of the viral ChatGPT chatbot. Technology companies and developers have been scrambling to deploy generative AI into their applications and investors are counting on this to drive a windfall of sorts for Nvidia, whose server chips remain the go-to products for AI workloads. Artificial intelligence workloads require a considerable amount of computing capacity, shifting the power balance away from central processing units made by the likes of Intel to Graphics processors, a market in which Nvidia dominates.
Increasing Adoption of Deep Learning Across Multiple Industries to Drive Nvidia's Data Center Growth
GPU-accelerated data centers are expanding in both High-Performance Computing (HPC) and the cloud, driven by the growth of deep learning and Big Data. GPUs have become the accelerator of choice for hyper-scale data centers due to their superior programmability, competitive performance, and power efficiency. The launch of VR can lead to potential growth in the enterprise segment across multiple industries. Nvidia powers IBM's lesson and Facebook's big source server from Artificial Intelligence (AI). It is present in AI platforms at hyper-scale giants such as Microsoft, Amazon, Alibaba, and Baidu for training as well as real-time influence. Nvidia is engaged with nearly 3,500 companies and organizations in developing deep learning technology.
Expansion of Advanced Driver Assistance Systems (ADAS) & Self-Driving Car Technologies To Drive Growth in the Automotive Segment
The automotive segment is a fast-growing sub-segment of Nvidia's Compute & Networking business. The company has been working on building its automotive computing platform for over a decade and is in a strong position to leverage this growth.
