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NVIDIA (NASDAQ: NVDA) stock has become one of the best investments in market history. Over a 10-year period, the share price has risen an incredible 16,790%!
In retrospect, it seems obvious that artificial intelligence (ai), and Nvidia as the primary supplier of chips that provide the computing power needed for ai, would always explode further.
But that is a cognitive bias based on recent events. No stock is guaranteed to succeed in the stock market.
However, since Nvidia clearly is If successful, is it too late to invest?
Not necessarily
In 2023, Nvidia shares rose 239% and ended the year at $495. Was it too late after that race? Well, given that they're now at $775 as I write, the answer is clearly no. So far they are up more than 60% in 2024!
Normally, when a stock takes off like this, it would quickly enter bubble territory. That is, the valuation of the share price would be completely detached from business fundamentals.
We saw this phoneme in the meme stock mania of 2021, when stocks of companies often with poor fundamentals gained a cult following on social media.
That speculative madness did not end well for stocks like AMC Entertainment.
However, Nvidia is different. The phenomenal share price performance has been driven by exceptional growth in the current business.
For example, in the three months to January 28, the chipmaker's revenue rose 265% to $22 billion, up from $6 billion last year. Net income skyrocketed 769%!
When a company prints money like this, it's not the hype that drives the stock price higher and higher. It is a logical answer.
So the answer is that the stock price will probably continue to rise as long as the incredible demand for its products continues.
When will the lawsuit end?
In essence, Nvidia has been selling shovels during the ai gold rush. And it can't make the blades fast enough to meet the demand coming its way.
This month, founder and CEO Jensen Huang said: “Accelerated computing and generative ai have reached the tipping point. Demand is increasing around the world in companies, industries and countries..”
For the current quarter, the technology company forecasts a 233% increase in revenue. That's more than analysts expected and the reason the stock rose again earlier this month.
However, while demand remains super strong, the law of large numbers dictates that impressive growth rates cannot continue forever.
At some unknown point, demand for its ai chips will normalize. We don't know if it will be a gentle fall or a cliff-like fall. Obviously, the latter would present a risk to the share price.
I have shares. Will I buy more?
Now, the question of whether to invest today comes down to expectations. Nvidia is now a $1.9 trillion company, the world's fourth largest by market capitalization (including state oil group Saudi Arabia).
Therefore, the stock almost certainly won't rise another 10x from this point. Any investor expecting this will be disappointed. However, I think the stock could still outperform over the long term as the ai revolution unfolds in the coming years.
So for now, I'm holding on to my Nvidia shares. If the stock falls, you might consider investing more money. But I don't expect its value to double or triple again anytime soon.
