If you had invested $5,000 in Nvidia (NASDAQ: NVDA) a decade ago, today you would be sitting on a goldmine worth more than $1.24 million. The chipmaker has been a breeding ground for millionaires due to the exponential growth in sales of its gaming and data center GPUs.
With a staggering market cap of $2.9 trillion, Nvidia currently holds the title of the third-largest publicly traded company globally, trailing only behind Apple and Microsoft. The question on every investor’s mind is whether Nvidia could replicate the magic of turning a $5,000 investment into a million-dollar treasure over the next decade.
Image source: Getty Images.
The Meteoric Rise of Nvidia’s Stock
Nvidia reigns as the premier producer of discrete GPUs for high-end PCs and servers globally. Its GPUs are versatile tools utilized for a myriad of purposes, from delivering cutting-edge graphics in video games to powering sophisticated photo and video editing software and even venturing into the realm of cryptocurrency mining and handling complex artificial intelligence (AI) tasks.
Formerly reliant on revenues from the PC market, Nvidia experienced a significant shift in recent years as its data center segment overshadowed its PC gaming division. This transition was fueled by enterprises rushing to upgrade their servers to accommodate emerging AI applications. Notably, titans of the AI world like Microsoft, OpenAI, and Alphabet’s Google have all harnessed Nvidia’s chips for their operations.
Over the period from fiscal 2014 to fiscal 2024, Nvidia witnessed a monumental revenue surge at a compound annual growth rate (CAGR) of 31%, alongside a staggering 50% CAGR for earnings per share (EPS). While initial growth was propelled by the expansion of its gaming GPU business, the data center division gradually emerged as the cornerstone of its growth trajectory. This pivotal shift fueled Nvidia’s exponential growth explosion in fiscal 2024 amidst the burgeoning AI market.
Metric | FY 2020 | FY 2021 | FY 2022 | FY 2023 | FY 2024 |
|---|---|---|---|---|---|
Revenue growth | (7%) | 53% | 61% | 0% | 126% |
EPS growth | (35%) | 55% | 129% | (56%) | 600% |
Data Source: Nvidia. Chart by Author.
During the transition from fiscal 2022 to fiscal 2024, the percentage of Nvidia’s revenue derived from data center chips doubled from 39% to 78%. This trend further escalated to 87% in the initial half of fiscal 2025, solidifying Nvidia’s position as a dominant player in the AI-centric data center chip domain.
The Bull and Bear Scenarios for Nvidia
Optimists on Nvidia foresee an extension of its growth trajectory fueled by market demand for novel AI chips surpassing supply levels. They anticipate a continuous expansion of the company’s gross margins, elevated from 62% in fiscal 2020 to an impressive 72.7% in fiscal 2024, attributing this growth to unparalleled pricing power in the thriving market. Moreover, proponents argue that Nvidia’s current stock valuation at 32 times next year’s earnings seems justifiable.
Conversely, pessimists envision a potential slowdown in Nvidia’s growth momentum as the fervor around AI subsides, competitively priced rivals like AMD make inroads, and stringent export regulations impede sales to China. Additionally, concerns arise as many of Nvidia’s primary clientele are developing their own AI accelerator chips to reduce dependence on the chipmaker. A resounding alarm is the revelation that Nvidia’s insiders offloaded shares at a rate ten times higher than their acquisitions over the past year, suggesting a possible limitation in its upside potential.
Unveiling Nvidia’s Potential to Create Millionaires
Analysts foresee a promising outlook for Nvidia from fiscal 2024 to fiscal 2027, estimating revenue and EPS growth at impressive CAGRs of 50% and 56%, respectively. This growth trajectory is expected to be chiefly steered by the roaring generative AI market, predicted by Fortune Business Insights to expand at a CAGR of 40% from 2024 to 2032.
If Nvidia aligns with the forecasts on Wall Street, maintaining a slower 30% CAGR for EPS growth from fiscal 2027 to fiscal 2035, and retains a 30 times earnings valuation, its stock price could ascend by a remarkable 840% to reach $1,110, propelling its market cap to a staggering $27 trillion by 2034.
However, even in the most optimistic scenario, a $5,000 investment in Nvidia would only yield $47,000. To replicate the millionaire-making magic, an investment of approximately $106,000 today would be imperative. Therefore, Nvidia presents the potential to foster millionaire dreams, contingent upon investors being able to commit such substantial capital to a single stock. Nonetheless, eclipsing the remarkable gains of the past decade seems a formidable task for Nvidia in the coming years.
Realistically, Nvidia’s growth trajectory might witness a deceleration in the next decade as the AI landscape matures and emerging competitors carve out their market share. Furthermore, external factors like a global recession or unforeseen macroeconomic or regulatory challenges could impede Nvidia’s growth momentum. Prudent investors are advised to factor in these risks and refrain from assuming that Nvidia’s scorching stock performance will endure indefinitely.
Is Nvidia Stock Worth Investing in Right Now?
Prior to diving into Nvidia stock, it’s prudent to weigh the following:
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Contemplate this scenario: if you had invested $1,000 in Nvidia when it was recommended on April 15, 2005, you would be sitting on an astounding $715,640 today!
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