Originally posted on Motley Fool
The chipmaker’s expansive end-market opportunity is the reason why it could keep delivering outstanding gains over the next decade.
Buying and holding solid companies for a long time is a tried and tested method of succeeding in the stock market. This strategy allows investors to capitalize on secular growth trends and also compound their investments. And Nvidia is a prime example of how this philosophy has helped people become millionaires in the past decade.
If you bought $5,000 worth of Nvidia stock a decade ago, your investment would now be worth a whopping $1.22 million.
So, anyone who was a decade away from retirement at that time would be able to retire as a millionaire right now assuming they bought $5,000 worth of Nvidia then. Expecting Nvidia to deliver such terrific returns over the next decade doesn’t seem possible right now considering its market cap of close to $3 trillion.
However, Nvidia remains a top growth stock to buy in light of its solid prospects. Assuming you’re at least a decade away from retirement this semiconductor stock could easily find a spot in a diversified million-dollar portfolio. Let’s look at the reasons why.
READ NEXT: 270X More Lucrative than NVIDIA???
Nvidia’s move to be omnipresent in AI could pay off remarkably in the long run
Artificial intelligence (AI) has been the driving force behind the massive surge in Nvidia’s stock since the end of 2022. That’s when ChatGPT burst onto the scene, and it emerged that the chatbot was trained using the chipmaker’s A100 graphics processing units (GPUs). Since then, major cloud computing players, tech giants, and even governments have been lining up to get Nvidia’s hardware.
Nvidia commands more than 80% share of the AI chip market as per analysts, leaving very little business for rivals in this fast-growing market. More importantly, Nvidia is trying to ensure it becomes a one-stop shop for anyone looking to use AI technology. From training AI models in data centers to running inference applications to offering software to customers to help them develop custom AI applications, Nvidia is leaving no stone unturned to capitalize on the lucrative revenue opportunity in the AI market.
For instance, Nvidia management said during the recent earnings conference call that 40% of its data center revenue in the past four quarters has come from AI inference applications. Inference is the process of feeding the already trained AI models with new data so that they can derive conclusions from larger database. In simpler words, putting the trained AI model into real-world use is known as inferencing.
So, Nvidia has managed to build a solid position for itself in both the AI training and inferencing markets. As a result, the company is well placed to make the most of the AI chip market that is expected to clock annual revenue of $341 billion by 2033. However, Nvidia believes that its data center opportunity is much bigger.
CEO Jensen Huang predicts that the company is on track to benefit from the upgrade of “$1 trillion worth of data centers from general-purpose computing to accelerated computing.” Given that the company has generated $96 billion in revenue in the past four quarters, Huang’s forecast suggests that it barely scratched of the end-market opportunity.
Meanwhile, the company has also targeted the multibillion-dollar opportunity in the AI software market. In March 2023, the company launched the Nvidia AI Foundations service for enterprises looking to build, finetune, and operate custom large language models (LLMs) and generative AI models for their use cases. As this is a cloud-based service, enterprises won’t have to invest in expensive infrastructure such as graphics cards.
Nvidia already had multiple customers for this service when it was launched a year and a half ago, with popular names such as Getty Images, Morningstar, and Shutterstock on board. And now, the company has strengthened its AI enterprise software platform with the addition of NIM Agent Blueprints, which is a “catalog of pretrained, customizable AI workflows that equip millions of enterprise developers with a full suite of software for building and deploying generative AI applications.”
In all, Nvidia is looking to provide enterprise customers with an end-to-end, cloud-based software platform to help them train and deploy generative AI applications. The company pointed out on its latest earnings call that it expects its software business to hit a $2 billion annual revenue run rate by the end of fiscal 2025. That would be impressive considering that a AI software specialist Palantir is forecasting $2.75 billion in revenue in 2024.
It won’t be surprising to see the software business moving the needle in a bigger way for Nvidia in the long run. That’s because the generative AI software platform market is forecast to generate $153 billion in revenue in 2028, growing at an annual rate of 40% over the next five years according to IDC.
As such, there is more to Nvidia’s AI opportunity than just hardware. There is a good chance that it could become a much bigger company over the next decade.
READ NEXT: Is Kamala Harris Bad for Bitcoin?
Robust growth over the next decade could make this stock a multibagger
Nvidia finished fiscal 2024 with earnings of $1.19 per share. Its bottom line is expected to more than double in the current fiscal year, followed by healthy growth over the next couple of years.
But the interesting thing to note is that Nvidia’s earnings growth estimates have witnessed significant upward revisions of late, as evident from the above chart. Not surprisingly, analysts are expecting the company to clock a 52% annual earnings growth rate for the next five years. Nvidia’s potential addressable market suggests that it could sustain such impressive growth for a longer period.
Assuming Nvidia’s earnings could grow at a relatively conservative rate of even 30% for the next decade, its bottom line could increase to just over $39 per share. Multiplying the projected earnings after a decade with the Nasdaq-100 index’s forward earnings multiple of 30 (using the index as a proxy for tech stocks) — which is a discount to Nvidia’s five-year average forward earnings multiple of 40 — would translate into a stock price of $1,170.
That would be in the neighborhood of 10x of Nvidia’s current stock price. So, investors with an aim of retiring as millionaires and looking to add a potential multibagger to their portfolios can still consider buying Nvidia. In the wake of its outstanding gains, this AI stock seems built for more upside.
READ NEXT: Could You Retire on a Single AI Stock (trading for only $15)?
Imagine what the perfect AI stock would look like…
- It would be at the forefront of the $5 trillion AI trend…
- It would provide a crucial key component that big AI firms like NVIDIA, Tesla or Microsoft desperately need to stay in business…
- It would have a virtual monopoly in its market… ensuring competitors can’t steal any market share…
- It would have to be exempt from federal taxes… so it can dominate competitors
- It would have a proven ability to scale into billions of dollars in sales and profits…
- It would be flush with cash, and constantly expand its operations by buying out competing companies…
- Its stock price would be low enough that anyone – regardless of how much money they have – could buy a significant number of shares…
- It would have to be backed by clued-in billionaires with a track record of generating massive returns in the market…
- In addition, it would have to be an under-the-radar stock that’s currently ignored by the mainstream financial media…
- And finally, it would need enormous upside potential and pay out “AI Royalties” that are 50X… 100X… even 270X more lucrative than regular dividend paying AI stocks
This all might seem too good to be true…
But as you’re about to see, this perfect AI stock does exist.
And it’s currently trading for only $15.
With just one investment in this company, you could potentially set yourself up for massive financial gains.