Nvidia (NVDA -0.06%) It turned out to be the best investment of the past decade. A $20,000 investment in the semiconductor giant 10 years ago is now worth more than $3.4 million, an increase of about 170 times in value.
It's also worth noting that it took the company less than 10 years to turn a $20,000 investment into exactly $1 million. Assuming he bought $20,000 worth of his Nvidia stock on August 1, 2016, the value of the investment would be just seven figures.
NVDA data by YCharts.
So, if you have $20,000 in investable cash after paying your bills, paying off high-interest debt, and building a large enough emergency fund for tough times, invest that money in Nvidia. is needed. Can you become a millionaire by replicating your past performance?
How Nvidia grew 50x in less than 10 years
Nvidia's business has grown significantly over the past eight years. In fiscal year 2016 (ending January 31, 2016), the company reported revenue of $5 billion. When the company releases its fourth-quarter 2024 financial results later this week, it expects annual sales to be around $60 billion.
An impressive 12x increase in revenue over eight years means that Nvidia's revenue has grown at an average annual rate of 36%. This impressive growth can be attributed to the company's dominant position in the discrete graphics processing unit (GPU) market, which was originally used in gaming personal computers (PCs) to improve the graphics performance of games. . The company's graphics cards are currently being deployed in multiple areas, from automotive to data centers to digital twins.
Nvidia's growth has been well rewarded by the market, and it is now the fourth largest company in the world with a market capitalization of $1.82 trillion. This is a significant increase from the company's market capitalization of $30 billion as of August 2016. Also, the company still has some great growth drivers that could help it maintain a solid growth pace in the future.
Artificial intelligence (AI) is the first catalyst. The market value of AI chips could be $305 billion in 2030, compared to $29 billion in 2022. With a 92% market share in this niche market, his Nvidia is in a great position to gain capital. Meanwhile, the company is also establishing itself in the multibillion-dollar market for digital twins.
When you factor in other factors, such as the cloud gaming market, it's easy to see why the consensus estimate is that the company's revenue is expected to grow at an average annual rate of just over 100% over the next five years. Even better, NVIDIA management pointed out in an investor presentation a few years ago that across the company's various end markets he believes there is a massive $1 trillion revenue opportunity.
Given that Nvidia's fiscal year 2024 revenue is expected to be just under $60 billion, that's less than 10% of the total addressable market. So, based on estimates of Nvidia's total addressable market, we can't rule out the possibility of the company's revenue growing 12x again.
But how long that will take or whether it will really happen is questionable, as is the ability of stocks to turn a $20,000 investment into a $1 million stock.
Will this semiconductor giant be able to grow 50x again?
Its current market capitalization is approximately $1.8 trillion, but if it were to multiply by 50 times, its market capitalization would be an astronomical $90 trillion. That seems ridiculous. The global economy was worth an estimated $105 trillion last year.
Given that global gross domestic product (GDP) is expected to grow at an annual rate of 2.2% until 2030, the value of the global economy could be approximately $122 trillion by the end of 2030. It is unreasonable to expect Nvidia to control nearly three-quarters of the global economy. However, it is worth noting that global GDP has increased by just over 1,800% over the past 50 years.
Assuming that the global economy grows by 1,000% over the next 50 years, global GDP could reach $1.155 trillion. In that context, a $90 trillion market cap doesn't seem all that impossible for NVIDIA. A $20,000 investment made today could eventually turn into $1 million if it persists over the next half century and remains a dominant supplier in its end market thanks to solid product development efforts. .
Of course, if Nvidia has not been able to keep up with its competitors over the past few decades, it may not be able to provide the returns that investors expect. But his Nvidia outlook for the next few years seems bright enough to justify the investment.
Nvidia is still a top stock to buy
We've already seen how quickly Nvidia is growing. More importantly, analysts are expecting impressive revenue growth for the company thanks to its strong position in the AI chip market and other catalysts it supports. As a result, it's no surprise that Nvidia stock is set to deliver healthy returns over the next five years.
Considering Nvidia trades at 35x forward price-earnings, compared to its five-year average earnings multiple of 42x, now is a good time to buy this top AI stock before it skyrockets. Probably.
