accelerated computing company Nvidia (NASDAQ:NVDA) It was the best performing stock among the S&P500 last year. The company’s stock price soared 239% as investors pivoted their portfolios to artificial intelligence (AI) stocks. But that stellar performance was just the latest chapter in a long coming-of-age story that is still being written.
The artificial intelligence (AI) market is expected to grow at 37% annually and approach $2 trillion by 2030, and Nvidia positions itself as a key beneficiary. In fact, CFRA analyst Angelo Gino recently told Business Insider that “NVIDIA will clearly be the biggest winner” as the opportunity unfolds.
Here’s what investors need to know.
Here are the annual returns for Nvidia stock since 2000.
Nvidia stock has risen more than 31,400% over the past 24 years, increasing at an annualized rate of 27.4%. To put this into context, his $10,000 invested in the company in January 2000 would be worth about $3.1 million today.
The graph below shows how much Nvidia’s stock price rose (or fell) in each year from 2000 to 2023.
In 1999, Nvidia invented the graphics processing unit (GPU), bringing innovative visual effects to the gaming and multimedia market. These chips have become the gold standard in video game graphics and professional visualization. Nvidia has more than 95% of the workstation graphics processor market, and its chips are all movies It has been nominated for an Academy Award for Best Visual Effects in the past 15 years.
In 2006, Nvidia introduced the CUDA programming model. This innovation turned GPUs into general-purpose processors, paving the way for data center dominance. Nvidia GPUs are now the gold standard for accelerating data center workloads such as AI, data science, and scientific computing. In fact, the company holds about 95% market share in data center GPUs and 80% to 95% market share in AI chips.
Nvidia further expanded its data center footprint by expanding into adjacent hardware markets. Acquired high-performance networking company Mellanox in 2019. intel and Advanced Micro Devices Its InfiniBand and Spectrum-X networking platforms and Grace CPUs are purpose-built for AI, and the company is already showing strong traction across these product lines. Specifically, executives say that networking is his $10 billion business and that CPU is on pace to become a multi-billion dollar business in the near future.
In 2021, Nvidia entered subscription software with AI Enterprise, a platform that simplifies the development and deployment of AI applications across a variety of sectors. The software suite includes frameworks that streamline the creation of recommender systems for retail, intelligent avatars for customer service, and computer vision systems for autonomous machines in logistics and manufacturing.
In 2023, the company delved into cloud services with Omniverse Cloud and DGX Cloud. These platforms integrate supercomputing infrastructure, software, and pre-trained machine learning models to support the development of 3D, AI, and robotics applications. Additionally, Nvidia recently announced foundry services powered by DGX Cloud that allow companies to customize large-scale language models and build generative AI applications for text, images, video, and drug discovery.
In short, Nvidia has evolved from a GPU company to a full-stack data center computing company with a focus on graphics and AI. The company’s ability to deliver solutions across infrastructure, software and services further strengthens the company’s leadership in these markets. In Gino’s words, “We believe… [Nvidia’s] Full-stack AI/software capabilities give you an incredible competitive edge. ”
Nvidia reported impressive financial results in the third quarter
In the third quarter, NVIDIA looked untouchable. Revenue increased 206% to $18.1 billion, driven by record sales in the data center division, as well as momentum in gaming and professional visualization. Meanwhile, non-GAAP (adjusted) net income increased 588% to $10 billion as high-margin software and services accounted for a larger portion of total revenue.
The chart below shows the revenue for each business segment for the third quarter of fiscal 2024 (ending October 29, 2023).
Nvidia stock is trading at a fair price
As mentioned earlier, spending on AI across hardware, software, and services is expected to grow at 37% annually through 2030. Meanwhile, the graphics processor market is expected to grow at approximately 28% annually over the same period. Nvidia, perhaps more than any other company, is in a great position to monetize both tailwinds.
Either way, Wall Street analysts expect the company to see sales grow 40% annually over the next five years. Based on this consensus estimate, the current valuation of 23.6 times sales looks quite reasonable. Patient investors with a five-year time horizon should feel comfortable buying a small position in Nvidia stock today.
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Trevor Jennewine has a position at Nvidia. The Motley Fool has a position in and recommends Advanced Micro Devices and his Nvidia. The Motley Fool recommends Intel and recommends the following options: Long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
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