Nvidia has accelerated many investors’ path to becoming millionaires.
Nvidia (NVDA -1.36%) This is one of the greatest wealth creation machines investors have ever seen. A $10,000 investment in Nvidia five years ago is now worth more than $275,000, significantly accelerating many investors’ path to millionaire status.
But you can’t go back in time and buy stocks to take advantage of that movement. Instead, all we are left with is the future, and that’s where questions arise. “Can I become a millionaire by investing in Nvidia stock now?”
Nvidia’s incredible growth is thanks to AI
Nvidia’s rise is directly related to the boom in artificial intelligence (AI). Nvidia’s main product is graphics processing units (GPUs), the hardware most commonly used for training AI models. GPUs have the unique ability to process multiple calculations in parallel. You can also connect to clusters for even more computing power. When thousands of GPUs are connected, the computing power reaches a level that can efficiently train top-level AI models.
Nvidia benefits from every GPU it sells as companies race to increase computing power to provide consumers and businesses with the best models possible. This led to an incredibly rapid increase in revenue.
NVDA Revenue (TTM) Data by YCharts
This strong growth has been accompanied by impressive stock returns. This is why NVIDIA has been one of the top stocks to own for the past few years.
Nvidia has already proven to be great, but what will it be able to do in the future?
Nvidia stock price is high, but market opportunity exists
Unfortunately, if you’re expecting similar performance from Nvidia over the next five years, you’ll likely be disappointed. Over the course of its run, Nvidia has grown to become the world’s second-largest company and is quickly closing in on the number one spot, overtaking Apple.
Therefore, for a stock to double (or triple), it would need to reach heights that no company has ever come close to. As a result, investors will need to adjust their expectations.
As an individual investor, a worthy goal is to beat the market by 1 to 2 percentage points each year. Over a long-term investment horizon, that 1-2 percentage point difference can make a big difference. For example, if an investor started with $100,000 and did not add any money for 30 years, the final return at various performance levels would be:
Return level Terminal value 10% $1.7 million 11% $2.3 million 12% $3 million
While not everyone has $100,000 to start investing 30 years from now until retirement, the principle remains that a few percentage points of outperformance can make a big difference. Another way to look at this is that a higher rate of return reduces the amount of time it takes to reach a certain amount, accelerating your path to becoming a millionaire.
This is a hurdle for Nvidia to clear, as the S&P 500’s long-term average return is about 10% per year.
So, can NVIDIA earn 12% annually going forward? I think that’s a fair bet. The demand for Nvidia GPUs is still unmet. Global Market Insights predicts that the GPU market value will be $456 billion by 2032. NVIDIA has a fairly strong position in the GPU market, generating just under $100 billion in revenue over the past 12 months. That means there are still plenty of opportunities.
However, investors need to be aware of Nvidia’s price tag. On a price-to-earnings ratio basis, this makes Nvidia’s stock the most expensive it has been for most of this year.
NVDA PE Ratio Data by YCharts
Therefore, now may not be the best time to enter stocks. However, if you’re patient, scooping up stocks at a discount can be a smart strategy since stock prices tend to drop from time to time.
Nvidia may not be able to make you a millionaire on its own any time soon, but as part of a diversified portfolio, it can accelerate your path to millionaire status.
Keithen Drury has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.
