There’s no denying the fact that Nvidia is. (NASDAQ:NVDA) For those who bought the chipmaker’s stock a decade ago, it was a life-changing investment. That’s because NVIDIA stock has gained an impressive 26,800% over the past decade, significantly canceling out the 195% gain recorded by the S&P 500 index over the same period.
Investors who have bought and held Nvidia stock for this long have benefited from multiple catalysts, including growth in the video game market, increased adoption of graphics processing units (GPUs) in data centers, and further growth opportunities. I was able to receive it. In markets such as automobiles and digital twins.
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But the incredible rise in Nvidia stock over the past decade has made it the world’s second-largest company with a market capitalization of just under $3.4 trillion. Given that the global economy is expected to reach $110 trillion this year, expecting NVIDIA stock to repeat its impressive performance over the next decade seems far-fetched. This number is expected to jump to around $140 trillion by 2029, meaning that if Nvidia’s stock price rose 35 times over the next five years, it would be bigger than the global economy.
Of course, that’s absurd. Additionally, investors should be aware that betting on just one stock in the hope that it might change your life may not be the best idea. But at the same time, NVIDIA may still have additional upside to offer investors in the long run, given the huge revenue opportunities it can achieve, and which could find a place in a diversified portfolio. That’s a possible reason.
Let’s take a closer look at Nvidia’s potential catalyst and see why having this stock as part of your portfolio is a smart move in the long run.
In its 2022 investor presentation, Nvidia management noted that the company has a $1 trillion revenue opportunity. The company broke down the opportunity as follows: $100 billion in gaming, $300 billion in automotive, $150 billion in enterprise artificial intelligence (AI) software, $150 billion in Omniverse enterprise software, $150 billion in enterprise chips and systems, and $150 billion in other sectors. It’s a dollar. Hyperscale chips and systems.
However, the available opportunities seem to have increased significantly in recent years. For example, Nvidia management currently sees a $1 trillion revenue opportunity in data center chips alone. That’s because chipmakers are now anticipating a shift from general-purpose computing to accelerated computing in data centers, simultaneously reducing power consumption and increasing computing power.
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During Nvidia’s August earnings call, CEO Jensen Huang said that accelerated computing “allows us to perform larger-scale computing, such as scientific simulations and database processing; “This will lead to lower costs and lower energy consumption.” He added that “it’s not uncommon for people to save 90% of their computing costs” by moving from general-purpose computing to accelerated computing.
Accelerated computing is made possible by accelerators such as GPUs, a market dominated by Nvidia. It reportedly controlled 98% of the data center GPU market last year. This isn’t surprising since rivals like AMD lag far behind Nvidia when it comes to data center revenue.
So, assuming Nvidia’s revenue opportunities in gaming, automotive, enterprise AI software, and omniverse software have remained constant over the past few years totaling $700 billion, the company’s total addressable market is currently 1. It has reached a staggering $700 billion. Given that Nvidia is expected to end its ongoing 2025 fiscal year with $129 billion in revenue, the large addressable market could sustain the company’s impressive growth over time. It shows that.
Perhaps this is why Nvidia’s consensus revenue forecast has increased noticeably in the coming years.
NVDA earnings forecast data for the current year by YCharts.
Nvidia’s healthy revenue growth explains why the company’s revenue is also expected to continue to grow at a good pace.
NVDA EPS estimates for current year data by YCharts.
Nvidia ended the last fiscal year with a profit of $1.30 per share, and this year’s bottom line is expected to more than double. The graph above shows that next year’s revenue could grow by 50% and by 26% in FY2027. Assuming that NVIDIA takes full advantage of the favorable accessible market provided and records annual growth of 15%, the bottom line will amount to $11.93 per share after factoring in revenue growth over the next 10 years. Possibly (based on current year’s expected earnings of $2.95 per share).
The company’s stock is currently trading at a forward P/E ratio of 32 times, which is undervalued compared to the company’s five-year average forward P/E ratio of 41 times. If the market decides to reward NVIDIA with an even richer multiple, and the company trades at a P/E ratio of 41x in 10 years (in line with the five-year average), it would be worth $11.93 in earnings per share. Based on estimates, the company’s stock price could reach $489 per share.
Reaching this level would require an increase of 254% from the current level, which doesn’t seem impossible. Therefore, investors can consider buying Nvidia stock and holding it for the long term as it could potentially make them richer.
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*Stock Advisor returns as of December 2, 2024
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
Will buying Nvidia stock today save you the rest of your life?Originally published by The Motley Fool
