Where will Nvidia stock be in 10 years’ time?

$1,000 worth NVIDIA (NVDA -4.08%) Buying this stock 10 years ago would have been worth more than $220,000 today, a life-changing return that shows the power of long-term investing. During that time, the company has crashed and recovered multiple times. Stronger More than ever before.

Past performance is no guarantee of future profits, especially for a company. already The company is valued at $2.93 trillion, but here’s a look at what’s in store for the iconic chipmaker and its shareholders over the next decade.

History of boom and bust cycles

Founded in 1993, Nvidia is Graphics Processing Unit (GPUs) are computer chips that excel at performing multiple tasks simultaneously. This hardware was a natural fit for the video game industry, and Nvidia quickly became a top supplier of early consoles and gaming computers when 3D rendering was new and exciting.

Since the 2010s, GPUs have found new uses in areas such as: Cryptocurrency miningIn the past, Nvidia has seen sales surge and shortages for many of its advanced consumer hardware products. Selection subjects The slump came as demand for gaming and mining plummeted.

But the launch of Open AI’s ChatGPT in late 2022 breathed new life into the company, and now its data center division is outperforming its former core business: Data center revenue surged 154% in the second quarter. Year-on-year change Strong demand for enterprise GPUs helped revenues grow to $26.3 billion (88% of revenue), while the gaming and PC division grew 16% to $2.9 billion (10% of revenue).

How long will the AI ​​boom last?

History tells us that Nvidia is a highly cyclical company. In other words The business performance is Macroeconomics or external industry trends of Management control. And the company good There are plenty of jobs to meet the surge in demand for AI hardware, but the industry cannot sustain itself alone if demand weakens. this This is something long-term investors should take note of.

AI chatbots are fun to play with, but they haven’t (yet) become the transformative megatrend people hoped for: Goldman Sachs analysts say companies may never see a return on their $1 trillion investment. Expected The amount of money to spend on AI-enabled hardware in the coming years is huge, as computing costs and competition from free, open-source models make monetization of this technology unlikely.

Image source: Getty Images.

Nvidia executives disagree. CFO Colette Kress has argued that over the next four years, cloud providers could make $5 in profit for every $1 spent on Nvidia hardware today. But these enterprise customers are still the infrastructure side of the industry. The real challenge is monetizing consumer AI software, which requires generating profits to sustain demand for hardware and infrastructure.

NVIDIA End The next decade

While it’s impossible to predict the future, the hype around generative AI will likely eventually fade, much like other boom-and-bust cycles in Nvidia gaming and cryptocurrency. The good news is that GPUs are a highly adaptable technology platform, and they’re already beginning to find new use cases.

Over the next decade, investors should expect Nvidia to expand into highly synergistic areas like self-driving cars. Augmented Realitywarehouse robotics, and other areas as technology advances. The company’s brand loyalty (driven by proprietary software solutions such as CUDA) could help it seize these new opportunities, as it has with generative AI.

From a valuation perspective, NVIDIA’s stock is not overvalued at 43 times forward earnings, given its triple-digit growth rate. However, investors should view this discount as a sign that the market is losing confidence in NVIDIA’s ability to maintain its current growth levels. Investors may be better off waiting until the AI ​​bubble has potentially deflated before investing in this stock.