Buying and holding solid companies for long periods of time is a proven strategy for making money in the stock market because it allows investors to benefit from the power of compounding and also allows them to capitalize on secular and disruptive growth. possibilities.
Nvidia (NASDAQ: NVDA) has been such a wonderful stock that has turned smart and far-sighted investors into millionaires. In fact, an investment of just $1,200 made in Nvidia stock a few decades ago is now worth more than $1 million.
Do you miss the morning spoon? Breakfast news delivers it all in one fast, silly and free daily newsletter. Register for free »
This remarkable rise in Nvidia stock over the past two decades is due to multiple growth factors, such as the growing craze for PC (personal computer) and smartphone gaming, the increasing chip content in cars, the rise of cloud gaming, and the rapid game development. growing demand for high-performance computing in data centers.
All of these catalysts helped improve sales of Nvidia’s graphics processing units (GPUs). And now, artificial intelligence (AI) has proven to be another powerful growth driver for the chip giant. The great thing is that AI adoption is currently in its early stages of growth, and there are several ways Nvidia can take advantage of this technology.
At the same time, there are additional catalysts that could help this chipmaker post excellent profits in the long term. Of course, Nvidia’s massive market cap of $3.35 trillion means the company may not be able to repeat the red-hot wave of the past two decades, but its growth engines will make it clear that the company still has plenty of fuel in stock. the tank to become part of a million dollar portfolio.
Let’s see why.
When Nvidia announced its third-quarter fiscal 2025 results (for the three months ending October 27), it posted record revenue of $35.1 billion. The chipmaker’s revenue rose 94% year over year, driven by a 112% increase in data center revenue to $30.8 billion. So the data center business produced almost 87% of Nvidia’s total revenue.
It is known that there is a huge demand for Nvidia’s data center GPUs for training and deploying AI models. The company held 98% of this market in 2023, and its performance this year suggests it is still the dominant player in this sector as its rivals have failed to make much progress. This bodes well for Nvidia, as the size of the AI chip market is expected to grow from $123 billion this year to $311 billion by 2029.
However, Nvidia management sees a much bigger opportunity in the data center sector than just AI. During the company’s latest earnings conference call, Chief Executive Officer Jensen Huang pointed out that “$1 trillion worth of computer systems and data centers around the world” are now being upgraded to handle the machine learning workload.
These upgraded data centers will be powered by GPUs instead of central processing units (CPUs) to enable the transition from general purpose computing to accelerated computing, opening up a massive growth opportunity for Nvidia. The great thing is that the transition has already started thanks to AI. Market research firm Dell’Oro Group estimates that sales of general-purpose servers could increase by just 3% annually between 2023 and 2028. Accelerated servers, on the other hand, are expected to achieve a much stronger annual growth rate of 31%. % during the same period.
Another key reason the shift to GPU-powered accelerated computing will gain momentum is because of energy efficiency. Nvidia points out that GPUs’ ability to do more work in less time compared to CPUs means they use less energy. Data centers are reportedly responsible for 1% to 2% of global electricity consumption, and that percentage is expected to double by the end of the decade. So GPU adoption in data centers is likely to increase thanks to catalysts beyond AI, paving the way for long-term growth at Nvidia.
Nvidia now depends on its data center activities for a large part of its revenue. However, the company is also gaining traction in the enterprise software market, where customers are using its AI-focused solutions to integrate generative AI into their operations.
By Accenture to Deloitte Salesforce Unpleasant JUICENvidia has already found several customers for its business AI offering. These customers use Nvidia’s platform to build copilots and AI agents. As a result, Nvidia now expects AI business revenue to more than double in the current fiscal year, with more growth expected in the coming years due to the improving revenue pipeline in this area.
Given that the overall enterprise AI market is expected to have an annual growth rate of nearly 38% and generate $155 billion in revenue through 2030, it won’t be surprising to see Nvidia take more share in this market. The aforementioned catalysts, Nvidia’s AI dominance and the enormous opportunity it presents, explain why analysts have increased their revenue expectations for the company for the current and next two fiscal years.
This impressive growth is also expected to impact the company’s results.
More importantly, Nvidia appears to be positioned to maintain such healthy growth beyond the next three years, given the $1 trillion opportunity in accelerated computing and the lucrative enterprise AI software market, which will drive the could pave the way for more profits in this technology. stock.
That’s why investors looking to build a million-dollar portfolio can still consider buying Nvidia, as it currently trades at 33 times forward earnings, which isn’t much more than the tech-heavy Nasdaq-100 index at 31 times estimated earnings.
Consider the following before buying shares in Nvidia:
The Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Nvidia wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $833,545!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns November 25, 2024
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Accenture Plc, Nvidia and Salesforce. The Motley Fool recommends the following options: long January 2025 $290 calls on Accenture Plc and short January 2025 $310 calls on Accenture Plc. The Motley Fool has a disclosure policy.
These Beautiful Stocks Have Made Many Millionaires and Could Make More, Originally published by The Motley Fool
