There is no denying that artificial intelligence (AI) has been the driving force behind Nvidia's (NASDAQ: NVDA) stunning stock market rally since the end of 2022 as the rapidly growing adoption of this technology led to outstanding growth in the company's revenue and earnings.
For example, Nvidia's data center revenue shot up a whopping 154% in the second quarter of fiscal 2025 to a record $26.3 billion. The sharp surge in this segment's revenue was the reason why Nvidia's overall revenue jumped 122% year over year to $30 billion, crushing Wall Street's expectations. Even better, the company's guidance was stronger than what analysts were looking for, but the stock price action suggests that the market isn't satisfied with its numbers and outlook.
AI fatigue may have hit Nvidia
Investors don't seem to be too excited about Nvidia's performance last quarter as the stock has been heading south since announcing its earnings on Aug. 28. That may be a result of Nvidia expecting its top line to jump "only" 80% year over year in the current quarter to $32.5 billion.
Of course, the chipmaker's guidance points toward a deceleration from the previous quarter's reading, but this was inevitable considering the massive scale of Nvidia's business and the revenue that it is generating already. Again, the relatively modest outlook as compared to the previous quarter may have created concerns in the minds of investors that Nvidia's eye-popping growth could eventually slow.
The good part is that the AI chip market seems set for impressive growth in the long run, which could allow Nvidia to maintain healthy growth levels thanks to its dominant position in this market. However, concerns about AI's ability to deliver enough returns for companies that have been pouring billions of dollars into this technology seem to be weighing on investors' minds.
So, it can be said that investors and analysts may want something more than AI to help reinforce their belief in the company's long-term growth prospects. This is where an emerging $143 billion market could come to Nvidia's rescue -- a market that's currently not big enough to move the needle for the company but has the potential to become a key growth driver in the long run.
This massive market could be the company's next big catalyst
According to market research report aggregator Market.us, the cloud gaming market was worth an estimated $5 billion last year. But this market is expected to clock an impressive annual growth rate of almost 47% through 2032, generating $143 billion in revenue at the end of the forecast period.
The good news for Nvidia investors is that it isn't oblivious to this lucrative opportunity. The company already provides a cloud gaming service known as GeForce Now. Though Nvidia doesn't give away a lot of details about this service and includes its revenue within its gaming segment, it did reveal that GeForce Now had 25 million members last year.
Investors should note that GeForce Now has a free membership tier as well, so the number of paid cloud gaming subscribers Nvidia has is unclear. However, as per Market.us, GeForce Now had 9 million users until last year, and this lower count as compared to the service's overall membership base possibly indicates the number of paid users.
The number of GeForce Now subscribers is more than the combined user base of the PlayStation and Xbox cloud gaming users, as per Market.us. More specifically, Sony's PlayStation cloud gaming service had 3.6 million subscribers last year, while Microsoft's Xbox cloud gaming base stood at 4.2 million.
For comparison, the research report says the total number of paid cloud gaming subscribers stood at almost 30 million last year. Nvidia, therefore, has cornered 30% of the cloud gaming user base. More importantly, there is a good chance that it could convert more of its free members into paid subscribers thanks to a fast-expanding library.
Nvidia management said on the latest earnings conference call that it offers a library of more than 2,000 titles on GeForce Now, which the company claims is "the most content of any cloud gaming service." But even if Nvidia manages to sustain a 30% share in the cloud gaming market over the next decade, it could pull in more than $40 billion in revenue from this market based on the $143 billion market estimate.
However, the average spending by each cloud gaming user is expected to grow impressively in the coming years, according to Statista, jumping from $14 last year to almost $38 in 2027. So, Nvidia could enjoy a greater revenue share of the cloud gaming market in the long run which may exceed its share of users. More importantly, Nvidia has already built a nice user base in cloud gaming that it could eventually monetize.
All this indicates that cloud gaming could become a sizable business for Nvidia in the long run, and it won't be surprising to see the company generating a much higher figure than the $40 billion estimate. Cloud gaming could give Nvidia's gaming business a big boost in the long run considering that the company has generated just over $11.2 billion in revenue from this segment in the past four quarters.
Throw in the secular growth opportunity in the personal computer and digital twin markets, there are multiple reasons for investors to remain bullish on Nvidia for the long run beyond AI. Buying and holding this technology stock for the long run could turn out to be a smart move.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
