Nvidia (NASDAQ: NVDA) stock has turned into one of the best investments in market history. Over a 10-year period, the share price is up an incredible 16,790%!
In hindsight, it seems obvious that artificial intelligence (AI) — and Nvidia as the lead supplier of chips that provide the necessary AI computational power — would always explode higher.
But that’s a cognitive bias based on recent events. No share is nailed on to succeed in the stock market.
However, given that Nvidia clearly is succeeding, is it too late to invest?
Not necessarily
In 2023, Nvidia shares rose 239%, ending the year at $495. Was it too late, after that run? Well, given that they’re now at $775 as I write, the answer is clearly no. They’re up more than 60% in 2024 so far!
Normally, when a stock takes off like this, it would quickly enter bubble territory. That is, the share price valuation would become totally detached from business fundamentals.
We saw this phonenomon play out in the 2021 meme stock mania when shares of companies — often with poor fundamentals — gained cult-like followings on social media.
That speculative craze didn’t end well for stocks like AMC Entertainment.
However, Nvidia is different. The phenomenal share price performance has been driven by exceptional growth in the actual business.
For example, in the three months to 28 January, the chipmaker’s revenue surged 265% to $22bn from last year’s $6bn. Net income skyrocketed 769%!
When a company is printing money like this, it’s not hype driving the share price ever higher. It’s a logical response.
So, the answer is that the share price will likely carry on going up while ever the incredible demand for its products continues.
When will demand end?
In essence, Nvidia has been selling shovels during an AI gold rush. And it can’t make the shovels fast enough to meet the demand coming its way.
This month, founder and CEO Jensen Huang said: “Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations.”
For the current quarter, the tech firm is forecasting a 233% jump in revenue. That’s more than analysts were expecting and why the stock surged again earlier this month.
However, while demand remains uber-strong, the law of large numbers dictates that the eye-popping rates of growth can’t continue forever.
At some unknown point, demand for its AI chips will normalise. We don’t know whether it will be a smooth tailing-off or a cliff-like drop. The latter would obviously present a risk to the share price.
I hold shares. Will I buy more?
Now, the question of whether to invest today comes down to expectations. Nvidia is now a $1.9trn company, the world’s fourth largest by market cap (including state-owned oil group Saudi Aramco).
Therefore, the stock is almost certainly not going to rise another 10 times from this point. Any investor hoping for this will be disappointed. Yet I do think the shares could still outperform long term as the AI revolution develops over the next few years.
So, for now, I’m holding onto my Nvidia shares. If the stock dips, I might consider investing more money. But I’m not expecting it to double or triple in value again anytime soon.
