In the past 10 years Nvidia (NASDAQ: NVDA)the superchip manufacturer, has achieved remarkable returns and significantly outperformed the S&P500 Table of contents.
Just $1,000 invested in Nvidia during this period has grown into a pile of cash of more than $255,000. In contrast, an equivalent investment in a broad market traded fund (ETF), such as the Vanguard S&P 500 ETFwould be worth a much more modest sum of about $3,300 today.
However, Nvidia’s meteoric rise has taken its valuation to nosebleed levels. With a price-earnings ratio of almost 47, the stock is richly priced compared to the S&P 500. After all, this reference index trades at approximately 21 times forward earnings.
In this context, Nvidia stock may seem too risky and on the verge of a return to the mean. This way of thinking fails to capture Nvidia’s radical value proposition and seriously underestimates the revolutionary changes in society that are extremely close at hand.
The technological singularity and the role of Nvidia
Nvidia’s significance extends beyond financial statistics. The company’s top-of-the-line graphics processing units (GPUs) and parallel computing platform CUDA are crucial in humanity’s relentless pursuit of the “technological singularity.”
This concept, coined by John von Neumann in 1958, describes when artificial intelligence (AI), powered by machine learning algorithms, surpasses human cognitive skills. It’s the point where the line between humanity and computers becomes blurred.
While experts debate the exact timing of this event, there is broad consensus that it will indeed occur. Operating at unprecedented speeds, Nvidia’s GPUs could accelerate the realization of artificial general intelligence (AGI) within months.
AGI represents an AI system that can understand, learn and apply knowledge to various tasks – a milestone that will reshape our world. This milestone is widely expected to unleash an ‘intelligence explosion’, paving the way for technological singularity.
Artificial superintelligence and the near future
Beyond AGI lies artificial superintelligence (AST), where AI systems surpass human cognitive capabilities in all domains.
What is critical to understand is that AST could arrive much sooner than expected. Some experts predict that we will witness this transformative leap by the end of this decade, largely powered by Nvidia’s Blackwell superchips and CUDA software platform.
Now pessimists think that this event is unlikely to happen before 2050, and others argue that it is technically impossible for reasons beyond the scope of this article. But there is mounting evidence that this bear thesis is a failure of imagination rather than a clear-sighted view of the events unfolding before our eyes.
The big picture
For investors, the key insight is that Nvidia is breaking new ground. Despite the stock’s high valuation by traditional standards, Nvidia’s recent progress suggests it may be time to reconsider conventional financial metrics.
At COMPUTEX 2024, CEO Jensen Huang highlighted Nvidia’s innovative Blackwell ecosystem in his keynote and previewed transformative technologies such as AI-driven manufacturing and advanced robotics.
This presentation supports the argument that Nvidia’s current market valuation, nearly $3 trillion, may not fully reflect its potential, perhaps by order of magnitude.
Key learning points
While geopolitical tensions, such as the hypothetical conflict between the US and China over Taiwan and its semiconductor industry, could pose significant risks, the invention of AGI, AST and the technological singularity seems a foregone conclusion at this advanced stage.
Moreover, there is increasing evidence that potential competitors like this Advanced micro devices And Intel are too far behind to seriously challenge Nvidia’s dominance in this exponentially growing industry.
Not only are the switching costs extremely high, but Nvidia has outpaced its competitors several times over the past decade. There’s no compelling reason to think this dynamic will change — even though some analysts have argued that companies may want to diversify the field to avoid becoming too dependent on one chip designer.
In short, Nvidia appears poised to deliver extraordinary returns over the next five to ten years as the AI revolution advances at ridiculous speed.
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George Budwell holds positions in Vanguard S&P 500 ETF. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and Vanguard S&P 500 ETF. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls to Intel and short August 2024 $35 calls to Intel. The Motley Fool has a disclosure policy.
Nvidia: The Best Is Yet To Come was originally published by The Motley Fool
