Nvidia‘s (NASDAQ: NVDA) stock has been on an impressive journey, outpacing the general market by leaps and bounds. With a remarkable 145% surge year-to-date, its growth has been truly stellar. Looking back, Nvidia has soared an astounding 487% over the past three years and an impressive 2,740% over the last five years.
The company’s long-term valuation remains compelling, trading at 28.5 times fiscal 2027 projected earnings, which is quite reasonable for a top-tier tech firm. Despite this meteoric rise, questions loom overhead about whether the chip manufacturer’s dominance can persist. Let’s delve into the three compelling factors that keep Nvidia’s stock as a prime contender for investors.
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Nvidia shines in its commitment to rewarding shareholders through buybacks and dividends. In its recently filed 10-Q statement with the SEC, the company revealed repurchasing a substantial 62.8 million shares worth $7 billion in the second quarter of fiscal year 2025.
With a recent board approval for $50 billion in additional share repurchases, bringing the total authorization to $53.9 billion as of August 26, Nvidia showcases a solid belief in its long-term prospects. Despite a modest 0.03% dividend yield, the increased quarterly cash dividend post-stock split to $0.01 per share earlier this year displays management’s dedication to loyal shareholders.
These capital initiatives underscore Nvidia’s focus on enhancing shareholder value. The mix of robust share buybacks and consistent dividend growth offers investors varied means of returns, setting Nvidia apart in the tech sector that often prefers plowing profits back into the business instead of paying dividends.
Factor 2: Riding the AI Wave
Nvidia is excellently positioned to leverage the artificial intelligence (AI) explosion. Its GPUs are regarded as the gold standard in AI and machine learning applications, as reflected in the company’s surging data center revenue.
Forecasters predict AI will revolutionize the global economy with Accenture estimating it could double annual global economic growth by 2035 and PricewaterhouseCoopers projecting a potential 14% GDP surge by 2030 due to AI adoption.
Given Nvidia’s technological supremacy in AI hardware, it stands at the vanguard of this transformation. With GPUs crucial for training large language models and driving AI-based applications across sectors, Nvidia is poised to benefit from intensifying demand for its specialized hardware.
Factor 3: Data Center Growth Trajectory
Nvidia’s CEO foresees a horizon where “millions of GPU data centers” power AI interactions across the web, and this vision is fast materializing. Major tech players are significantly upping their GPU procurements, with Microsoft planning to triple GPU supplies to 1.8 million units this year.
Similarly, Meta Platforms has ordered 150,000 H100 GPUs last year and plans to acquire 350,000 H100s or equivalents this year, while Tesla and X by Elon Musk are also significantly investing in AI infrastructure, bolstering demand.
Industry analysts project exponential growth. Broadcom expects million-GPU clusters by 2027, compared to today’s tens of thousands, while Advanced Micro Devices’ CEO forecasts the AI accelerator market to hit $400 billion by 2027.
With Nvidia’s dominant market share, this could translate to a $320 billion data center segment for the company by 2027. For context, Nvidia is on pace to generate around $106 billion to $121 billion (an approximation) in data center revenue in fiscal 2025.
The Path Forward
Nvidia’s stock performance has been truly exceptional. Its focus on rewarding shareholders through buybacks and dividends underscores confidence in its long-term outlook. Crucially, Nvidia’s pivotal role in the AI revolution positions it for sustained growth.
While historical performance doesn’t secure future outcomes, Nvidia’s tech leadership and strategic position render it an alluring choice for investors keen on capitalizing on the AI megatrend. As AI applications proliferate across sectors, Nvidia’s hardware is set to play a progressively pivotal role in fueling these technologies. The company’s robust financial stance and focused strategy lay a firm groundwork for future expansion.