Can Nvidia Stock Help You Retire as a Millionaire? | The Motley Fool

Buying and holding solid companies for the long term is a proven way to succeed in the stock market. This strategy allows investors to take advantage of long-term growth trends and compound their investments. And NVIDIA (NVDA -4.80%) This is a great example of how this philosophy has helped people become millionaires over the last decade.

If you bought $5,000 worth of Nvidia stock 10 years ago, your investment would now be worth a whopping $1.22 million.

NVDA data by YCharts

That means that if you had 10 years left until retirement, you could retire as a millionaire today if you bought $5,000 worth of Nvidia stock then. Given that the company has a market cap of nearly $3 trillion, it seems impossible at this point to expect Nvidia to make that much money over the next decade.

But NVIDIA remains a top growth stock to buy given its solid outlook. Assuming you have at least 10 years until retirement, this semiconductor stock could easily fit into a diversified $1 million portfolio. Let’s see why.

Nvidia’s move to become ubiquitous in AI could pay surprising dividends in the long run

Artificial intelligence (AI) has been the driving force behind Nvidia’s stock price surge since the end of 2022. That’s when ChatGPT came on the scene, revealing that the chatbot was trained using the chipmaker’s A100 graphics processing units (GPUs). Since then, major cloud computing companies, tech giants and even governments have been lining up to get their hands on Nvidia’s hardware.

According to analysts, Nvidia holds more than 80% of the AI ​​chip market, leaving little room for rivals in this fast-growing market. More importantly, Nvidia aims to be a one-stop shop for anyone looking to harness AI technology. From training AI models in the data center to running inference applications to providing customers with software to help them develop custom AI applications, Nvidia is leaving no stone unturned to capitalize on the lucrative revenue opportunities in the AI ​​market.

For example, Nvidia executives said in a recent earnings call that 40% of their data center revenue over the past four quarters came from AI inference applications. Inference is the process of feeding an already trained AI model with new data to draw conclusions from a larger database. Simply put, inference refers to applying a trained AI model to real-world use.

That’s why Nvidia has managed to carve out a strong position in both the AI ​​training and inference markets, positioning the company to take full advantage of the AI ​​chip market, which is expected to reach $341 billion in annual revenue by 2033. But Nvidia sees a much bigger opportunity in the data center.

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

Meanwhile, the company is also eyeing the multi-billion dollar opportunity in the AI ​​software market. In March 2023, the company launched its Nvidia AI Foundations service for companies that want to build, fine-tune and operate custom large language models (LLMs) and generative AI models for their own use cases. As this is a cloud-based service, companies will no longer need to invest in expensive infrastructure such as graphics cards.

Nvidia already had several customers on board when the service launched a year and a half ago, including big names like Getty Images, Morningstar, and Shutterstock, and now the company has beefed up its AI enterprise software platform with the addition of NIM Agent Blueprints, “a catalog of pre-trained, customizable AI workflows that provide millions of enterprise developers with a complete suite of software for building and deploying generative AI applications.”

Overall, Nvidia is looking to provide enterprise customers with an end-to-end, cloud-based software platform to help them train and deploy generative AI applications. The company said in its latest earnings call that it expects its software business to reach $2 billion in annual revenue by the end of fiscal 2025. Palantir It projects revenue of $2.75 billion in 2024.

Longer term, it wouldn’t be surprising if the software business is a big step forward for Nvidia, as the generative AI software platform market is projected to generate $153 billion in revenue in 2028 and grow at a 40% compound annual rate over the next five years, according to IDC.

So NVIDIA’s AI opportunities go beyond hardware, and it’s entirely possible that the company could become a much bigger company over the next decade.

Robust growth over the next decade makes this stock a potential multi-bagger

Nvidia finished fiscal 2024 with earnings of $1.19 per share. The company’s bottom line is expected to more than double during the current fiscal year and enjoy healthy growth in the years to come.

NVDA EPS forecast data for the current fiscal year from YCharts

However, what’s interesting to note is that Nvidia’s revenue growth forecasts have been revised upwards significantly recently, as evidenced by the chart above. Not surprisingly, analysts expect the company to post 52% annual revenue growth over the next five years. Nvidia’s potential addressable market suggests the company can sustain such impressive growth for a long period of time.

Assuming NVIDIA’s revenues grow at a relatively conservative 30% rate over the next decade, the company’s net income could grow to just over $39 per share. Nasdaq 100 The index trades at 30 times forward earnings (using the index as a proxy for tech stocks), a discount to Nvidia’s five-year average forward earnings multiple of 40, which would imply a price of $1,170.

This represents roughly 10 times Nvidia’s current share price. Therefore, investors who want to retire as billionaires and add a potential multi-bagger to their portfolio can consider buying Nvidia. This AI stock has made impressive gains and is poised for further gains.