Nvidia Stock Could Benefit from $80 Billion Market Growth

Graphics processing units (GPUs) have been Nvidia‘s (NASDAQ: NVDA) bread-and-butter business for a long, long time. The company initially made its name producing GPUs meant for deployment in personal computers (PCs) for gaming and content creation, before eventually striking gold with its data center GPUs that are now in red-hot demand thanks to artificial intelligence (AI).

As it turns out, data center compute 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 on July 28). The segment’s revenue shot up 162% year over year, accounting for 75% of the company’s top line. However, there is another niche within the data center business where Nvidia is now gaining impressive traction.

This particular business segment is now bigger than Nvidia’s gaming business, and it could turn out to be a key growth driver for the company in the long run. Here’s a closer look at this emerging business that could supercharge Nvidia’s growth.

Nvidia is making terrific progress in this $80 billion market

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

Nvidia sold $3.7 billion worth of networking chips in the previous quarter, up 114% from the same quarter last year. The company’s networking revenue in the first half of the fiscal year stood at $6.8 billion, translating into an annual revenue run rate of nearly $14 billion. The global data center networking market is estimated to generate $37.6 billion in revenue this year. If Nvidia indeed ends fiscal 2025 with $14 billion in data center networking revenue, it would end up controlling 37% of this market.

What’s worth noting here is that Nvidia is reportedly growing at a faster pace than the data center networking space, which has received a major shot in the arm thanks to 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% thanks 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 hitting $80 billion over the next five years, which would be nearly double the size of the current data center switch market. We have already seen that Nvidia is enjoying a solid share of this market, and Dell’Oro points out the same. The research firm says that the InfiniBand networking platform is currently dominating the market for AI back-end networks, and it is worth noting that Nvidia offers networking products based on this networking communications standard.

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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 networking platform is the world’s first Ethernet networking platform for AI and is capable of accelerating AI networking performance by 1.6x when compared to traditional Ethernet. Nvidia management’s comments on the August earnings conference call suggest that Spectrum-X has gained terrific traction among customers. According to CFO Colette Kress: “Ethernet for AI revenue, which includes our Spectrum-X end-to-end Ethernet platform, 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, GPU cloud providers, and enterprises, including xAI to connect the largest GPU compute cluster in the world.”

A new multibillion-dollar business in the making

Kress says that Spectrum-X is “well on track to begin a multibillion-dollar product line within a year.” So, it won’t be surprising to see Nvidia eventually cornering a sizable portion of the data center networking market. The rate of growth of Nvidia’s networking business means it is growing at a faster pace than the data center networking market right now, which is why it won’t be surprising to see it capture a bigger share of this space in the future.

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

Throw in the rosy prospects of the overall AI chip market, which is expected to clock $311 billion in annual revenue in 2029, and it won’t be surprising to…