Could Nvidia Stock Help Make You a Millionaire?

Buying and holding solid companies for a long time is a tried and tested method of succeeding in the stock market. This strategy allows investors to capitalize on secular growth trends and also amplify their investments. And Nvidia (NVDA 0.94%) is a prime example of how this philosophy has helped people become millionaires over the past decade.

If you bought $5,000 worth of Nvidia stock a decade ago, your investment would now be worth $1.22 million.

NVDA data by YCharts

So anyone who was a decade away from retirement at that point could retire a millionaire right now, assuming they bought $5,000 worth of Nvidia back then. Expecting Nvidia to deliver such windfalls over the next decade doesn’t seem possible now, given its nearly $3 trillion market cap.

However, Nvidia remains a top stock to buy in light of its solid outlook. Assuming you’re at least a decade away from retirement, this semiconductor stock could easily find a place in a multi-million dollar diversified portfolio. Let’s look at the reasons.

Nvidia’s move to be omnipresent in AI could pay off handsomely in the long run

Artificial intelligence (AI) has been the driving force behind the massive rally in Nvidia stock since late 2022. That’s when ChatGPT came along, and it turns out the chatbot was trained using the chipmaker’s A100 graphics processing units (GPUs). Since then, major cloud computing players, tech giants, and even governments have lined up to get Nvidia hardware.

According to analysts, Nvidia has more than 80% share of the AI ​​chip market, leaving very little business for rivals in this fast-growing market. More importantly, Nvidia is trying to make sure it becomes a one-stop shop for anyone looking to use AI technology. From training AI models in data centers to running inference applications to providing software to customers to help them develop custom AI applications, Nvidia is leaving no stone unturned to capitalize on the lucrative revenue opportunity in the AI ​​market.

For example, Nvidia management said during its recent earnings conference call that 40 percent of its data center revenue over the past four quarters came from AI inference applications. Inference is the process of feeding new data to already trained AI models so that they can derive conclusions from a larger database. In simpler words, using the trained AI model in the real world is known as inference.

So Nvidia has managed to build a strong position in both the AI ​​training and inference markets. As a result, the company is well-placed to make the most of the AI ​​chip market, which is expected to reach $341 billion in annual revenue by 2033. However, Nvidia sees its data center opportunity as much bigger great.

CEO Jensen Huang predicts the company is on track to benefit from upgrading “$1 trillion worth of data centers from general-purpose computing to accelerated computing.” With the company generating $96 billion in revenue over the past four quarters, Huang’s forecast suggests it has barely scratched the surface of the end-market opportunity.

Meanwhile, the company has also targeted the multi-billion dollar opportunity in the AI ​​software market. In March 2023, the company launched the Nvidia AI Foundations service for enterprises looking to build, refine and operate custom large language models (LLM) and generative AI models for their use cases. Since this is a cloud-based service, businesses will not need to invest in expensive infrastructure such as graphics cards.

Nvidia already had several customers for the service when it launched a year and a half ago, with popular names like Getty Images, Morningstar and Shutterstock. And now, the company has strengthened its enterprise AI software platform with the addition of NIM Agent Blueprints, which is a “catalog of pre-trained, customizable AI workflows that equip millions of enterprise developers with a complete suite of software to build and deploy generative AI applications. .”

In total, Nvidia seeks to provide enterprise customers with an end-to-end, cloud-based software platform to help them train and deploy generative AI applications. The company pointed out in its last earnings call that it expects its software business to reach an annual revenue rate of $2 billion by the end of fiscal 2025. That would be impressive given that a specialist in AI software Palantir estimates revenue of $2.75 billion in 2024.

It won’t be surprising to see the software business move the needle in a bigger way for Nvidia in the long run. That’s because the market for generative AI software platforms is expected to generate $153 billion in revenue by 2028, growing at a 40% annual rate over the next five years, according to IDC.

As such, there is more to Nvidia’s AI opportunity than just hardware. There is a good chance that it will become a much bigger company in the next decade.

Robust growth over the next decade could make this stock a multibagger

Nvidia ended fiscal 2024 with earnings of $1.19 per share. The bottom line is expected to more than double in the current fiscal year, followed by healthy growth in the next two years.

NVDA EPS estimates for current fiscal year data by YCharts

But the interesting thing to note is that Nvidia’s earnings growth estimates have seen significant upward revisions of late, as evident from the chart above. Not surprisingly, analysts expect the company to post an annual earnings growth rate of 52% over the next five years. Nvidia’s potential addressable market suggests it could sustain such impressive growth for a longer period.

Assuming that Nvidia’s earnings could grow at a relatively conservative rate of even 30% over the next decade, its bottom line could rise to just over $39 per share. Multiplying projected earnings after a decade by Nasdaq-100 The index’s forward earnings multiple of 30 (using the index as a proxy for tech stocks) — which is a discount to Nvidia’s five-year average earnings multiple of 40 — would translate to a stock price of $1,170.

That would be close to 10x Nvidia’s current share price. So investors who want to retire as millionaires and want to add a potential multibagger to their portfolios can still consider buying Nvidia. Following its remarkable gains, this AI stock looks built for more growth.