The artificial intelligence (AI) sector has boomed in recent years and Nvidia (NASDAQ: NVDA) stock has been front and centre of its rise.
There’s a reason for that. It’s because the business controls a 90%-95% market share of the AI chip market.
As such, its share price has skyrocketed as more investors continue to pile into the market darling.
But how much would I have today if I’d invested £5k in the stock five years ago, way before Nvidia was in the spotlight? Let’s take a look.
An incredible return
Back then, a share would have set me back $46. As I write, its share price sits at $864. That’s an incredible gain of 1,788.6%.
This means that my five grand outlay would now be worth £89,430. That’s astonishing. Over this period, Nvidia has been one of the best-performing stocks on the market.
What next?
But these incredible numbers have me thinking: where could its share price go in the next five years?
Well, there’s no chance that we see it produce similar returns. But considering the growth that analysts think it will achieve, it wouldn’t be unlikely to see its share price keep heading upwards.
Last year, revenues rose 126% to $60.9bn. For 2025, experts expect that to climb above $110bn.
Its operating profit is also predicted to soar. Last year it sat at $9bn. For 2025, it’s expected to rise around 700% to $72.8bn.
Its data centre revenues have been fuelling its performance lately. Fourth-quarter revenue for the unit rose 409% year on year while full-year sales climbed 217%. Nvidia has a host of heavyweight names such as Tesla and Microsoft queuing up to buy its graphics processing units. If demand keeps rising, Nvidia will keep raking in revenue.
Too much, too soon?
But then again, while analysts are predicting high levels of growth for the firm, these are lofty aims. Should the company miss these predictions for whatever reason, this could see the stock nosedive.
As such, some market spectators claim Nvidia is in a bubble. And in fairness, I think they could be right.
Nvidia has become one of the most traded stocks on the market but with that comes risk. We’ve seen reports of institutional investors reducing their position in the company in fear that retail investors are pushing its price higher.
What’s more, the stock’s valuation is on the expensive side. It trades on 72.4 times trailing earnings. That’s over three times the S&P 500 average (23) and considerably more costly than all the remaining Magnificent Seven. The next closest is Amazon at 60.4 times.
My move
Nvidia’s rise in the last five years has been extraordinary, but I’m put off from buying the stock today. If I didn’t own the shares already, I wouldn’t be keen on buying any at their current price.
Investors have come to expect so much from the business that I’m worried any sign of a slowdown could see its share price significantly recoil.
In the years to come, the AI revolution will keep churning out more great investment opportunities. I’m on the hunt for them before I consider adding to my position in Nvidia.
