Nvidia’s Stock Surge: Is It Still a Smart Investment?
Shares of chipmaker Nvidia (NASDAQ: NVDA) have surged more than 2,400% over the past five years. This remarkable growth stems from advancements in artificial intelligence (AI) and the crucial role Nvidia’s chips play in emerging technologies.
Now that Nvidia is one of the most valuable companies globally, the question is: Is it still a good time to invest? Could a $25,000 investment in Nvidia grow to over $1 million in the long run?
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Reasons to Remain Optimistic About Nvidia
Investors might hesitate to buy Nvidia now, given its extraordinary past returns. After all, how much higher can it go?
However, if you believe in the future of AI, there’s reason for optimism. Nvidia leads the AI chip market with over 70% market share, making it a go-to choice for many companies developing AI technologies.
While competitors are creating custom chips, demand for Nvidia’s products remains strong. The company’s impressive growth numbers are evidence of this ongoing demand.
NVDA Operating Revenue (Quarterly YoY Growth) data by YCharts
Although Nvidia’s growth rate has slowed, achieving an average of about 80% growth annually over five years is still quite remarkable. Analysts predict that the AI chipset market may reach $323 billion by 2030, expanding at a compounded annual growth rate of 28.9%. Nvidia stands to benefit significantly from this growth potential.
Could Nvidia’s Stock Yield 40-Fold Returns?
Nvidia’s future value could be substantial. The big question remains: Can it deliver 40-fold returns needed for a $25,000 investment to reach $1 million? To achieve this, Nvidia may need to reach a market cap of roughly $150 trillion.
Such an immense valuation isn’t expected soon, but over 20 years, it could be possible if Nvidia maintains a return rate of around 20.3%. For a 25-year outlook, the required growth rate is slightly more manageable at 15.9%.
These projected growth rates would require Nvidia to continue outperforming the broader market, where the S&P 500‘s (SNPINDEX: ^GSPC) average annual return is about 10%. The possibility hinges mostly on the future of AI investments.
While there is potential, it’s essential to remain cautious. Many companies might not find value in developing AI models. The risk of entering another tech bubble fuels skepticism about Nvidia’s long-term returns.
Nvidia Still a Potential Investment
Even if Nvidia does not guarantee transformational returns for investors, it could still be a valuable addition to your portfolio. With its strong growth and reasonable valuation of under 60 times trailing earnings, Nvidia remains attractive for growth investors.
While it has shown impressive gains recently, it’s wise to manage expectations. Nvidia may be a good growth stock but isn’t likely to offer life-changing returns for those investing at current levels.
Is $1,000 in Nvidia a Wise Move Right Now?
Before making a decision on Nvidia stock, take note:
The Motley Fool Stock Advisor analyst team has highlighted their picks for the 10 best stocks to buy now, and Nvidia did not make the list. The potential of these selections could lead to significant returns in the years ahead.
For example, consider that if you had invested $1,000 in Nvidia when it first appeared on this list on April 15, 2005, you’d have $858,852 now!
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
