Prediction: This $80 billion market could be the next big growth driver for Nvidia stock

Graphics processing units (GPUs) were Nvidiahis (NVDA -1.59%) bread and butter business for a long, long time. The company initially made a name for itself by producing GPUs intended for deployment in personal computers (PCs) for gaming and content creation, before eventually striking gold with its data center GPUs, which are now in high demand thanks to artificial intelligence (AI).

As it turns out, data center computing chips now produce the majority of Nvidia’s revenue. The company sold $22.6 billion worth of data center GPUs in the second quarter of fiscal 2025 (which ended July 28). Segment revenue grew 162% year-over-year, accounting for 75% of the company’s top line. However, there is another data center niche where Nvidia is now gaining impressive traction.

This business segment is now larger than Nvidia’s gaming business and could prove to be a key growth driver for the company in the long term. Here’s a closer look at this emerging business that could supercharge Nvidia’s growth.

Nvidia is making tremendous progress in this $80 billion market

Nvidia sells two types of data center chips. The first are GPUs, which already generate several billion dollars in revenue for the company each quarter. Nvidia’s second type of data center chips are its networking chips, which are also selling like hotcakes, as the company’s latest quarterly results show.

Nvidia sold $3.7 billion worth of network chips last quarter, up 114 percent from the same quarter last year. The company’s networking revenue in the first half of the fiscal year was $6.8 billion, translating into an annualized revenue rate of nearly $14 billion. The global data center networking market is expected to generate $37.6 billion in revenue this year. If Nvidia does end fiscal 2025 with $14 billion in data center networking revenue, it would end up controlling 37 percent of that market.

What’s worth noting here is that Nvidia is growing at a faster pace than the data center networking space, which has been given a major boost by the advent of AI. According to market research firm Dell’Oro Group, the size of the data center switching market is likely to expand by 50% due to the growing need for switches deployed in back-end AI server networks.

The researcher sees spending on switches used in back-end AI servers reaching $80 billion over the next five years, which would be nearly double the current size of the data center switch market. We’ve already seen that Nvidia enjoys a solid share of this market, and Dell’Oro points out the same. The research firm says that the InfiniBand networking platform currently dominates the AI ​​back-end networking market, and it’s worth noting that Nvidia offers networking products based on this network communications standard.

Nvidia sells InfiniBand adapters, switches, data processing units (DPUs), routers, gateways, cables and transceivers to customers. Dell’Oro, however, points out that the Ethernet-based networking standard could eventually overtake the InfiniBand standard in the next few years. The good news for Nvidia investors is that Nvidia has already set its sights on the Ethernet AI networking platform.

It claims that its Spectrum-X network platform is the world’s first Ethernet network platform for AI and is capable of accelerating AI network performance by 1.6 times compared to traditional Ethernet. Comments from Nvidia management on the August earnings conference call suggest that Spectrum-X has gained tremendous traction with customers. According to CFO Colette Kress: “Ethernet revenue for AI, which includes our Spectrum-X end-to-end Ethernet platform, has doubled sequentially, with hundreds of customers adopting our Ethernet offerings. Spectrum-X has broad market support from OEM and ODM partners and is being adopted by CSPs, cloud GPU providers and enterprises, including xAI to connect the world’s largest GPU computing cluster.”

A new billion dollar business in the making

Kress says Spectrum-X is “on track to launch a multibillion-dollar product line within a year.” So it won’t be surprising to see Nvidia eventually corner a sizable chunk of the data center networking market. The growth rate of Nvidia’s networking business means it’s growing at a faster rate than the data center networking market right now, so it won’t be surprising to see it take up a larger share of this space in future.

But even if the company maintains its current market share of nearly 40% after five years, its annual network revenue could reach $32 billion (based on the $80 billion market size projected earlier). That would be a nice jump from the current rate of $14 billion in annual revenue from the networking business.

Add in the upbeat outlook for the overall AI chip market, which is expected to hit $311 billion in annual revenue by 2029, and it won’t be surprising to see Nvidia’s data center business become even bigger in the long run than it already is now. . Not surprisingly, analysts expect Nvidia’s earnings to grow at an annual rate of more than 52% over the next five years.

That’s why investors looking to add an AI stock to their portfolios should consider buying Nvidia right away, as it’s currently trading at 42 times forward earnings, a discount to the tech sector’s average price-to-earnings ratio of US of 45.