Shares of Nvidia (NASDAQ:NVDA) have been on an absolute tear in the last decade. After falling over 50% during the bear market of 2022, NVDA stock has surged more than 500% since the start of 2023. Valued at a market cap of US$2.24 billion, Nvidia is now among the largest companies in the world and has returned a staggering 20,000% to shareholders since May 2014.
As past returns don’t matter much to current investors, lets see if Nvidia stock should still be part of your equity portfolio right now.
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Nvidia is part of a rapidly expanding addressable market
Artificial intelligence, or AI, is a megatrend that is here to stay and is potentially the biggest tech advancement the world might ever see. Nvidia is positioned to benefit from AI as the chip manufacturer’s graphics processing units, or GPUs, are used to power a wide range of AI applications in data centres.
Compared to peers, Nvidia’s GPU chips are energy efficient and can process calculations faster, making them ideal for training data-heavy AI models. In fact, Nvidia’s GPU share in the AI chip market is forecast between 80% and 90%, making it an enticing investment even in 2024.
Advanced Micro Devices chief executive officer Lisa Su expects the AI chip market to surpass US$400 billion by 2027. In 2023, Nvidia’s data centre business generated US$47.5 billion in sales. So, if Nvidia can maintain a 40% market share in this business, data centre sales might reach US$160 billion by 2027.
Nvidia’s sales increased from US$16.67 billion in fiscal 2021 (which ended in January) to US$60.9 billion in fiscal 2024. It is forecast to report revenue of US$112 billion in 2025 and US$140.36 billion in 2025. Moreover, adjusted earnings are forecast to expand from US$12.96 per share in fiscal 2024 to US$65 per share in fiscal 2029.
So, if NVDA stock is priced at 30 times forward earnings, it may trade at US$1,950 per share in May 2028, indicating an upside potential of over 100%.
Diversify your AI portfolio
While Nvidia remains a compelling investment in 2024, investors can consider diversifying their AI portfolio by purchasing shares of companies such as UiPath (NYSE:PATH). Valued at US$11 billion by market cap, PATH stock is down 77% from all-time highs, allowing you to buy the dip.
UiPath is an enterprise-facing software platform that automates business processes. It serves sectors such as healthcare, telecom, finance, and banking and provides automation services for processes such as accounts payable, claims processing, contact service, and accounting.
In the fiscal fourth quarter (Q4) of 2024 (which ended in January), UiPath reported annual recurring revenue of US$1.46 billion, up 22% year over year. A steady stream of recurring sales should allow UiPath to generate cash flows across business cycles.
Unlike other growth stocks in the AI space, UiPath is reporting consistent profits, ending Q4 with an operating margin of 4%. Analysts tracking UiPath expect it to end fiscal 2029 with adjusted earnings of US$3.6 per share. If the tech stock is priced at 30 times forward earnings, it should trade at US$108, indicating an upside potential of over 450% from current prices.
