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NVIDIA (NASDAQ:NVDA) shares were trading at $146.14 at the beginning of 2023. As I wrote at the beginning of January 23, its shares are worth $596.54, representing a return of 308.2%.
If you had invested £10,000 back then, you would have £30,820 today. What more could an investor ask for?
The story of growth
Nvidia's third-quarter results for fiscal 2024, released in November, were truly exceptional. Revenue grew from $5.9 billion the previous year to $18.1 billion this time.
Gross margin also improved from 53.6% to 74%. Additionally, you would typically expect such an increase in revenue to be accompanied by a significant increase in operating expenses. However, this only increased by 16%.
Earnings per share (EPS) were another delight. From $0.27 last time they grew to $3.71, an increase of 1,274%.
It's easy to understand the optimism surrounding the company and why its share price has risen.
Valuation concerns
The only thing that worries me about Nvidia is its expensive valuation.
It is currently trading with a price-to-earnings (P/E) ratio of 78.5 and a price-to-sales (P/S) ratio of 33.
This is very expensive, leading to the suggestion that the share price is frothy.
ai supremacy
Ultimately, what would make Nvidia a great investment today is its future prospects.
And I think they're brilliant.
Of course, there are some risks. Competition within the GPU market is growing. Intel and Advanced Micro Devices Both have plans to start shipping new GPUs soon. Other large companies, such as microsoft and Amazon They also plan to enter the fray. Additionally, Nvidia's reliance on Taiwan Semiconductors for chip production could be a problem if geopolitical tensions in Taiwan increase.
But its dominant position in the ai space could be a catalyst for further growth. This is a market that is expected to be worth $1.81 trillion by 2030.
Its ai graphics cards, which are used for many applications such as generative ai, are the preferred choice of many developers. It has a market share of 90%.
With the ai market set to be valued at $197 billion by 2023, we could see a compound annual growth rate of 37.3% through 2030.
In its latest quarterly results, Nvidia indicated that its fourth-quarter revenue for fiscal 2024 should be around $20 billion. Assuming this is the case, its revenue for the year should be £58.8bn. The consensus among analysts is that it should reach $92 billion in 2025. This represents a growth of 56.5%.
Let's say that from this point on, Nvidia retains its market share and grows in line with the ai market at 37.3% annually. By 2030, it could have revenues of $449 billion.
Even if we were conservative and assumed it loses market share as competition in the ai world intensifies, it will still generate significant revenue. For example, if it only grows 25% a year (well below its current rate and what is expected from the market as a whole), it will still generate $281 billion.
Suddenly, stocks don't look expensive anymore. Rather, it's starting to look cheap to me.
If the share price lags behind earnings growth, for example growing at just 15% a year from early 2024 onwards, it will still turn a £10,000 investment into £26,600 by 2030.
This means a very good investment and I have been conservative with my figures. Therefore, if I had extra money, I would buy Nvidia stock today.
