NVDA: Expanding AI Demand Will Drive Major Data Center Investments Through 2026

Key Takeaways

• Surging AI adoption and ongoing infrastructure digitization are fueling sustained, diversified demand and multi-year top-line growth for NVIDIA.
  
• Continuous platform innovation and expanding full-stack offerings deepen customer reliance, strengthen margins, and secure long-term pricing power.
  
• Geopolitical risks, customer vertical integration, supply chain fragility, rising data center constraints, and escalating costs threaten NVIDIA's growth, margins, and long-term market dominance.

Catalysts

A computing infrastructure company, provides graphics and compute and networking solutions in the United States, Singapore, Taiwan, China, Hong Kong, and internationally.

• Widespread, accelerating adoption of advanced AI (especially reasoning/agentic AI) is driving orders-of-magnitude increases in compute needs for training and inference, powering massive growth in the addressable data center and AI infrastructure market-this supports multi-year, compounding revenue expansion and strong visibility for top-line growth.
  
• NVIDIA's continuous innovation and rapid execution-launching the Blackwell platform, seamless transition to GB300, and upcoming Rubin platform on an annual cadence-sustain technology leadership and premium pricing, reinforcing margin strength and supporting expanding earnings per share over time.
  
• The company is capturing a growing share of the expanding value chain by deploying full-stack AI infrastructure (compute, networking, systems, and software ecosystems including CUDA and TensorRT), deepening customer lock-in, boosting recurring software revenues, and supporting high gross margins.
  
• Structural supply/demand imbalances, surging AI CapEx spend from hyperscalers and sovereign entities globally, and persistent digitization across automotive, healthcare, manufacturing, and other sectors drive sustained, broad-based demand for NVIDIA solutions-translating into recurring, diversified revenue streams and reduced cyclicality in results.
  
• Adoption of more energy-efficient, high-performance architectures (Blackwell, Rubin) and advanced networking (NVLink, Spectrum-X) enables customers to maximize output per dollar and per watt, directly translating into increased customer revenue, positioning NVIDIA as the solution of choice amid industry power and infrastructure constraints-supporting both revenue growth and superior net margins.

NVIDIA Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming NVIDIA's revenue will grow by 26.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from 52.4% today to 55.7% in 3 years time.
• Analysts expect earnings to reach $187.9 billion (and earnings per share of $7.94) by about September 2028, up from $86.6 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $158.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.6x on those 2028 earnings, down from 47.9x today. This future PE is greater than the current PE for the US Semiconductor industry at 33.5x.
• Analysts expect the number of shares outstanding to decline by 0.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.97%, as per the Simply Wall St company report.

NVIDIA Future Earnings Per Share Growth

Risks

• Ongoing and intensifying US-China geopolitical tensions and export controls, including the uncertainty around licensing for H20 and Blackwell architectures in China, risk cutting NVIDIA off from what management estimates could be a $50 billion and rapidly growing annual opportunity, directly threatening future revenue growth and total addressable market.
  
• The rising trend of hyperscale and large enterprise customers developing their own ASICs or vertically integrating custom silicon (with public mentions of Broadcom and major cloud providers accelerating ASIC efforts) could lead to erosion of NVIDIA's data center market share, exerting sustained long-term pressure on both revenues and gross margins.
  
• Structural dependencies on TSMC and advanced semiconductor manufacturing-highlighted by upcoming product ramps (e.g., Rubin platform)-mean persistent supply chain fragility and global fab constraints could limit NVIDIA's ability to meet accelerating demand or increase costs (notably with substantial inventory increases), negatively impacting margins and earnings visibility.
  
• The accelerating growth in energy and infrastructure requirements for data centers, coupled with increasing global power constraints and regulatory scrutiny over AI and data usage, could limit the practical scale and profitability of large AI factory buildouts-potentially capping long-term revenue growth if energy or regulatory bottlenecks hinder customer investments.
  
• Aggressive annual product cadence and escalating operating expenses (driven by investments in new platforms and rising compensation costs) risk margin compression and delayed earnings leverage, especially if innovation cycles slow or new product adoptions (e.g., with Rubin) fail to sustain the current breakneck pace of demand expansion.

Valuation

• The analysts have a consensus price target of $207.015 for NVIDIA based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $270.0, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $337.2 billion, earnings will come to $187.9 billion, and it would be trading on a PE ratio of 34.6x, assuming you use a discount rate of 10.0%.
• Given the current share price of $170.76, the analyst price target of $207.01 is 17.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.