Key Points The data center market has been powering Nvidia’s growth.
Nvidia’s next big opportunity While AI data center spending is Nvidia’s largest market by far, it’s certainly not the only end market it participates in.
Today, that is why Nvidia’s GPUs have a dominant place in the data center.
It’s easy to dismiss a segment that was only a fraction of its data center revenue last quarter, but with the data center, Nvidia showed how quickly end markets can ramp up.
Nvidia Stock: Forget AI Data Centers, Is This Market Nvidia’s Next Big Growth Driver?
Important Points.
The market for data centers has been driving Nvidia’s expansion.
Cars, however, present the business with yet another enormous opportunity.
The stock does not appear to be priced into this opportunity at its current valuation.
ten stocks that we prefer over Nvidia.
Clearly, the largest beneficiary of the artificial intelligence (AI) infrastructure boom has been Nvidia (NASDAQ: NVDA). Due to their capacity for parallel processing, its graphics processing units (GPUs) have emerged as the preferred chips for executing AI workloads in data centers. Training large language models (LLMs) and conducting AI inference both depend on chips’ ability to execute numerous calculations simultaneously, which is made possible by parallel processing.
Nvidia’s CUDA software platform is equally significant since it facilitates the development and optimization of AI models on its hardware by developers. The company has maintained its dominant position in the data center market thanks to its best-in-class GPU performance and sticky software platform.
At the same time, this market has been booming. Its revenue from data centers has increased over the last two years, from $4.03 billion in the fiscal first quarter of 2024 (ending on April 30, 2023) to $391.1 billion in the fiscal first quarter of 2026 (ending on April 27, 2025). In just two years, that represents an almost tenfold increase.
Data center capital expenditures (capex) are expected to reach over $1 trillion by 2028, according to Nvidia. While not all of that expenditure will be allocated to GPUs, Nvidia is well-positioned to take a significant portion of the growth in data center spending overall due to its more than 80% market share in the GPU industry.
Nvidia is pursuing other potential large markets, though.
The next big thing for Nvidia.
Nvidia’s biggest market by far is AI data center spending, but it’s not the only end market it works with. Originally, the GPU was designed to make video game graphics rendering faster. Later, in order to reach a wider audience, the company developed CUDA, which allows developers to easily program its GPUs for other purposes.
The market for GPUs outside of video games, however, developed slowly. Advanced Micro Devices purchased rival GPU manufacturer ATI Technologies around the same time CUDA was released. Given its emphasis on integration and the lack of early traction outside of video games for GPUs, AMD was not in a rush to develop a rival software platform. Even though adoption was sluggish, Nvidia wisely started promoting CUDA for use in academic institutions and research facilities, which contributed to its adoption as the standard software application that developers were instructed to use when programming GPUs. This is the reason why Nvidia’s GPUs are so prevalent in data centers today.
However, at the same time, Nvidia was also making inroads into the automotive industry. Outside of the video game industry, Audi was actually one of its first major clients. The German luxury automaker started integrating Nvidia’s GPUs into its infotainment and navigation systems. Later, Nvidia created DRIVE, a comprehensive automotive platform that includes all the hardware and software tools developers require to create advanced driver-assistance and autonomous vehicle technology.
After much anticipation, autonomous driving has finally arrived. In the United States, for instance, Waymo, a division of Alphabet, currently offers over 250,000 paid robotaxi rides every week. S. . Although it is currently limited to a few cities, it is growing quickly. Nvidia’s GPUs are reportedly used in Waymo’s cars.
By no means is Waymo the only car company that uses Nvidia. While Toyota declared it would use Nvidia’s platform and chips for advanced driver assistance features in its next-generation vehicles, Mercedes, Volvo, and Hyundai all use Nvidia’s DRIVE platform and GPUs to power their self-driving technologies. In the meantime, “smart factory” initiatives from General Motors and Hyundai will leverage Nvidia technologies to enhance their manufacturing.
In the most recent quarter, Nvidia’s car revenue increased by 72% to $567 million. With the company predicting that its auto revenue will increase to about $5 billion this fiscal year, more growth is in store. As new automobiles with its technology start to appear on the road, the growth will occur. With regard to technology, Mercedes’ new CLA sedan is the newest model.
A segment that accounted for a small portion of its data center revenue in the previous quarter is easy to ignore, but Nvidia demonstrated how quickly end markets can ramp up with the data center. The market for autonomous driving is still in its early stages, so there is a huge opportunity. Given that Waymo currently has only about 1,500 robotaxis, it is clear that when it reaches scale, it may be able to accommodate 100x or more vehicles.
Conversely, Jensen Huang, the CEO of Nvidia, has forecast that all automobiles will eventually be automated. That’s a huge opportunity, considering there are over 1 billion cars on the road. During its 2022 investor day, Nvidia projected that the auto industry could present a $300 billion opportunity.
As of right now, Nvidia’s stock is not pricing in any potential upside from its next significant market opportunity, with a forward price-to-earnings ratio (P/E) of 33 times this year’s analyst estimates and a price/earnings-to-growth (PEG) ratio of 0.7, with numbers below 1 being considered undervalued.
Is it time for you to spend $1,000 on Nvidia?
Take this into account before purchasing Nvidia stock.
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Nvidia Stock: Is This Market Nvidia’s Next Big Growth Driver? was first published by The Motley Fool. Set aside AI Data Centers.
