Nvidia's Meteoric Rise: Implications for Investors and Future Prospects

Missed Out on Nvidia's 2,400% Gain? Here's What to Do Next. | The Motley Fool

Nvidia (NVDA 0.94%) shares have surged 2,400% over the past five years, pushed higher not only by optimism about the company's artificial intelligence (AI) chip business, but also by concrete results. The company's earnings have been climbing in the triple digits quarter after quarter as AI customers rush to get in on the latest chip to power their projects. This tech giant has been able to maintain its lead -- and pricing power -- because it offers the most powerful chips around. But in recent times, even though earnings continue to roar past expectations, Nvidia stock has lost momentum. The shares slipped 18% from the start of July through the early days of August, and in recent days they've stumbled, too. In fact, in one trading session this week, Nvidia lost $279 billion in market value -- the biggest ever single-day drop by that measure for a U.S. company. If you haven't bought shares of this market giant and missed out on its earlier explosive gains, you may be wondering what your options are right now. Is it too late to score a Nvidia win, or should you buy this player on the dip? Let's consider what to do next. First, let's talk about why Nvidia rose so much in the first place. The company, originally focusing on sales of graphics processing units (GPUs) to the video game market, realized these powerful chips could be used in many other settings -- including the high-growth area of AI. Nvidia put the focus there as companies began pouring investment into the technology, and that equaled enormous gains in revenue -- and stellar stock performance. In that early stage of AI, Nvidia was able to generate massive growth: Its data center revenue went from low levels to tens of billions of dollars in just a few years. As the technology progresses, we may not see that level of growth during each stage of development. But overall, there's reason to be optimistic about Nvidia's ability to significantly increase revenue over time -- and go through periods of high growth, for example, when major new products are released. And one of these periods may be right around the corner, with the company's release of its Blackwell architecture and most powerful chip ever. Blackwell includes six game-changing technologies, offering huge advances in computational power, energy savings, networking, and security. Though Nvidia products are known to be more expensive than those of rivals, the company argues that efficiency gains should result in a lower total cost of ownership over time -- meaning customers that spend more now may win in the long run. Nvidia aims to ramp up production of Blackwell in the fourth quarter and even generate billions of dollars in revenue from the platform during that period. Demand for the system is soaring, surpassing supply, so I'm optimistic about growth not only this year but well into next year. Now let's talk about Nvidia's recent stock price declines. Investors, worried about economic growth and the timing of potential interest rate cuts, have sanctioned technology stocks in general. These companies and their shares tend to suffer in a difficult economy as it's more difficult for them to expand in that sort of environment. For example, investors may be concerned that if interest rates remain high, companies may rein in spending on technology. But it's important to consider the long-term picture. There's very likely plenty to gain by buying Nvidia stock today and holding on for the long term. After all, the Blackwell platform should generate significant growth, and "other Blackwells," as Nvidia chief executive officer Jensen Huang has said, may do the same in the coming years -- Nvidia has pledged to update its GPUs annually, a key move that should drive demand for the chips. So, while you may have missed out on Nvidia's first wave of gains, you still could score a win down the road -- and that means buying shares of Nvidia is a great step to take right now. Today, you can pick up the shares for only 37x forward earnings estimates, a level that's very reasonable considering Nvidia's market leadership and constant innovation. And even if it takes longer than expected for the next chapters of the Nvidia growth story to play out, that's OK. When investing for five to 10 years, you've got time on your side.

Could Nvidia Stock Help You Retire A Millionaire? | The Motley Fool

The chipmaker's expansive end-market opportunity is the reason why it could keep delivering outstanding gains over the next decade. Buying and holding solid companies for a long time is a tried and tested method of succeeding in the stock market. This strategy allows investors to capitalize on secular growth trends and also compound their investments. And Nvidia (NVDA 0.94%) is a prime example of how this philosophy has helped people become millionaires in the past decade. If you bought $5,000 worth of Nvidia stock a decade ago, your investment would now be worth a whopping $1.22 million. So, anyone who was a decade away from retirement at that time would be able to retire as a millionaire right now assuming they bought $5,000 worth of Nvidia then. Expecting Nvidia to deliver such terrific returns over the next decade doesn't seem possible right now considering its market cap of close to $3 trillion. However, Nvidia remains a top growth stock to buy in light of its solid prospects. Assuming you're at least a decade away from retirement this semiconductor stock could easily find a spot in a diversified million-dollar portfolio. Let's look at the reasons why. Artificial intelligence (AI) has been the driving force behind the massive surge in Nvidia's stock since the end of 2022. That's when ChatGPT burst onto the scene, and it emerged that the chatbot was trained using the chipmaker's A100 graphics processing units (GPUs). Since then, major cloud computing players, tech giants, and even governments have been lining up to get Nvidia's hardware. Nvidia commands more than 80% share of the AI chip market as per analysts, leaving very little business for rivals in this fast-growing market. More importantly, Nvidia is trying to ensure it becomes a one-stop shop for anyone looking to use AI technology. From training AI models in data centers to running inference applications to offering software to customers to help them develop custom AI applications, Nvidia is leaving no stone unturned to capitalize on the lucrative revenue opportunity in the AI market. For instance, Nvidia management said during the recent earnings conference call that 40% of its data center revenue in the past four quarters has come from AI inference applications. Inference is the process of feeding the already trained AI models with new data so that they can derive conclusions from larger database. In simpler words, putting the trained AI model into real-world use is known as inferencing. So, Nvidia has managed to build a solid position for itself in both the AI training and inferencing markets. As a result, the company is well placed to make the most of the AI chip market that is expected to clock annual revenue of $341 billion by 2033. However, Nvidia believes that its data center opportunity is much bigger. CEO Jensen Huang predicts that the company is on track to benefit from the upgrade of "$1 trillion worth of data centers from general-purpose computing to accelerated computing." Given that the company has generated $96 billion in revenue in the past four quarters, Huang's forecast suggests that it barely scratched of the end-market opportunity. Meanwhile, the company has also targeted the multibillion-dollar opportunity in the AI software market. In March 2023, the company launched the Nvidia AI Foundations service for enterprises looking to build, finetune, and operate custom large language models (LLMs) and generative AI models for their use cases. As this is a cloud-based service, enterprises won't have to invest in expensive infrastructure such as graphics cards. Nvidia already had multiple customers for this service when it was launched a year and a half ago, with popular names such as Getty Images, Morningstar, and Shutterstock on board. And now, the company has strengthened its AI enterprise software platform with the addition of NIM Agent Blueprints, which is a "catalog of pretrained, customizable AI workflows that equip millions of enterprise developers with a full suite of software for building and deploying generative AI applications." In all, Nvidia is looking to provide enterprise customers with an end-to-end, cloud-based software platform to help them train and deploy generative AI applications. The company pointed out on its latest earnings call that it expects its software business to hit a $2 billion annual revenue run rate by the end of fiscal 2025. That would be impressive considering that a AI software specialist Palantir is forecasting $2.75 billion in revenue in 2024. It won't be surprising to see the software business moving the needle in a bigger way for Nvidia in the long run. That's because the generative AI software platform market is forecast to generate $153 billion in revenue in 2028, growing at an annual rate of 40% over the next five years according to IDC. As such, there is more to Nvidia's AI opportunity than just hardware. There is a good chance that it could become a much bigger company over the next decade. Nvidia finished fiscal 2024 with earnings of $1.19 per share. Its bottom line is expected to more than double in the current fiscal year, followed by healthy growth over the next couple of years. But the interesting thing to note is that Nvidia's earnings growth estimates have witnessed significant upward revisions of late, as evident from the above chart. Not surprisingly, analysts are expecting the company to clock a 52% annual earnings growth rate for the next five years. Nvidia's potential addressable market suggests that it could sustain such impressive growth for a longer period. Assuming Nvidia's earnings could grow at a relatively conservative rate of even 30% for the next decade, its bottom line could increase to just over $39 per share. Multiplying the projected earnings after a decade with the Nasdaq-100 index's forward earnings multiple of 30 (using the index as a proxy for tech stocks) -- which is a discount to Nvidia's five-year average forward earnings multiple of 40 -- would translate into a stock price of $1,170. That would be in the neighborhood of 10x of Nvidia's current stock price. So, investors with an aim of retiring as millionaires and looking to add a potential multibagger to their portfolios can still consider buying Nvidia. In the wake of its outstanding gains, this AI stock seems built for more upside.