This investor favorite has been on an epic run over the past couple of years and shows no signs of slowing.
The Nasdaq Composite has been on fire over the past couple of years, driven higher by the advent of artificial intelligence (AI), improving economic conditions, an uncontested election, and the Federal Reserve Bank’s recent moves to cut interest rates. After returning 43% in 2023, the tech-centric index is up roughly 30% in 2024. History suggests the rally will likely continue into 2025.
The current bull market began on Oct. 12, 2022, and while every rally is different, history can provide important context. Bull markets last more than five years, on average. Since the current rally just entered its third year, there’s a strong likelihood the Nasdaq will continue to gain ground next year. It’s also worth noting that the Nasdaq has generated gains 73% of the time, dating back 53 years, so history is on the side of investors. Finally, the Nasdaq has jumped 12%, on average, in years following positive gains, which suggests there’s additional upside ahead.
Furthermore, there’s been a resurgence in the popularity of stock splits over the past few years. As a result, investors are taking a renewed interest in companies that split their shares, as this is historically preceded by years of robust sales and profit growth. One such company is Nvidia (NVDA -1.81%). The stock has gained 26,920% over the past decade (as of this writing), prompting management to initiate a 10-for-1 stock split earlier this year — after a 4-for-1 split in 2021.
Despite its recent run-up, there’s reason to believe that Nvidia’s growth spurt will continue into 2025. Read on to find out why.
Image source: Getty Images.
Underpinning the AI revolution
The adoption of generative AI has spread like wildfire over the past two years as businesses are eager to share in the productivity increases promised by these advanced algorithms. Generative AI has proven adept at drafting and summarizing emails, searching and abbreviating content, mining data, generating original content, and writing computer code — and new applications are being discovered every day. Automating and streamlining tasks saves users time and money, driving new users to adopt AI.
Nvidia pioneered the graphics processing units (GPUs) that make this all possible. These specialized chips provide the sheer number-crunching capability that brought AI to life. The secret lies in parallel processing or breaking up computer-intensive jobs into smaller, more manageable bits. Nvidia first developed these chips to render lifelike images in video games but soon discovered other applications for this breakthrough technology, including data centers, high-performance computing (HPC), and machine learning — an earlier branch of AI.
The vast majority of AI processing is done in the cloud and in data centers, another factor that directly benefits Nvidia. The company controls as much as 98% of the data center GPU market, according to semiconductor analyst firm TechInsights. As evidenced by its entrenched position, Nvidia has become the gold standard for AI processing.
There’s always talk of ramping up competition, but thus far, Nvidia remains the king of the hill.
Paint by numbers
To understand the magnitude of Nvidia’s rise, a look at its financial results is in order. After generating triple-digit sales and profit gains last year, the company’s impressive win streak continues. During its fiscal 2025 third quarter (ended Oct. 27), Nvidia delivered record revenue of $35.1 billion, up 94% year over year. It also delivered earnings per share (EPS) of $0.78, up 111%. For context, the company generated more sales in one quarter than it produced for all of fiscal 2022.
The biggest contributor to its success was the company’s data center segment, which includes cloud computing, data center, and AI chips, and grew 112% year over year to $30.8 billion.
Wall Street expects Nvidia’s growth streak to continue. For its fiscal 2026 (which begins in late January), consensus estimates are calling for revenue of $195 billion, which would represent a year-over-year increase of 51%. However, the highest estimate clocks in at more than $269 billion, which would represent growth of more than 100%. Wall Street is notorious for underestimating Nvidia’s growth, so the reality is likely somewhere in between.
The future’s so bright, I gotta wear shades
Nvidia will begin shipping its next-generation Blackwell platform later this year, and by all accounts, the company has another market leader on its hands. Bank of America analyst Vivek Arya contends that investors continue to underestimate the magnitude of the demand for Blackwell, which he believes will be outselling Nvidia’s Hopper chips within two to three quarters. There’s also a big disconnect between Nvidia’s addressable market and how investors perceive it:
They really are a system integrator at this point. They’re selling complete racks with all the computing, the networking, the optical resources, the memory, everything thrown in. That is why the revenue monetization opportunity is so much greater [than investors appreciate].
The analyst goes on to say that Nvidia bundles its software with these myriad systems. All these opportunities, taken together, help illustrate why Nvidia’s addressable market continues to expand.
Yet, for all that opportunity — and despite its 183% gains so far this year — Nvidia is still attractively priced. Wall Street believes Nvidia will generate EPS of $4.42 in fiscal 2026 (which begins in January). That means the stock is currently selling for roughly 32 times forward earnings (as of this writing), which is remarkably cheap in light of the opportunity.
If I could buy just one stock-split stock heading into 2025, it would have to be Nvidia.
