Semiconductor giant Nvidia (NASDAQ: NVDA) is among the hottest stocks on the planet. The chip maker is at the epicentre of the artificial intelligence (AI) megatrend, which has allowed it to deliver outsized returns to shareholders in the past decade. Valued at a market cap of almost US$3.5 trillion, Nvidia stock continues to crush broader market returns in 2024.
So, let’s see how much your portfolio would be worth if you invested $100 monthly in this big tech stock over the last 10 years.
Nvidia has created massive shareholder wealth
One of the best ways to gain exposure to the equity markets is by investing small sums of money at regular intervals, a strategy called dollar-cost averaging. This allows you to take advantage of the underlying volatility associated with growth stocks such as Nvidia.
Suppose you invested $100 in Nvidia stock every month over the last 10 years; a cumulative investment of $12,000 would have ballooned to $285,632.18 today, indicating an internal rate of return of almost 72%. Alternatively, a lumpsum investment of $1,200 at the start of each year would be worth over $391,000 today, translating to a higher internal rate of return of 86.4%.
While both investment strategies have delivered market-thumping returns to shareholders, larger early investments captured more of the company’s growth, while monthly investments offered better price diversification.
As past returns don’t matter much to current and future investors, let’s see if investing in NVDA stock at the current valuation makes sense.
The bull case for investing in Nvidia stock
While Nvidia has seen its stock touch multiple fresh record highs due to strong AI demand, its growth story is far from over. Currently, most investors are focusing on the company’s impressive GPU (graphics processing unit) sales. Still, Nvidia is quietly positioning itself at the centre of what it calls “AI factories” — a new category of computing infrastructure that could represent a +US$2 trillion market opportunity.
These AI factories are sophisticated data centres designed to process massive amounts of data and train generative AI platforms.
Here are some interesting numbers, according to Nvidia’s recent presentation:
- Over 5.5 million developers use NVIDIA’s platforms
- NVIDIA powers 75% of the world’s top supercomputers
- +40,000 companies are using Nvidia’s AI solutions
What sets Nvidia apart is its full-stack approach, as it has successfully built an ecosystem ranging from chips to software. Its latest Blackwell architecture is part of an integrated platform that includes networking, software, and development tools.
Its enviable portfolio of products and solutions allowed Nvidia to increase its data center revenue from US$2.98 billion in fiscal 2020 (ended in January) to US$98 billion in the last 12 months.
Moreover, Nvidia commands a 90% share in the AI GPU segment, allowing it to enjoy pricing power and expand profit margins significantly. Its operating margins have risen from 16.2% in fiscal 2015 to 62.7% in the last 12 months. The company’s free cash flow has totalled US$56.5 billion over the past year, up from US$800 million in fiscal 2015.
Notably, Nvidia is pushing beyond digital AI into robotics, autonomous vehicles, and industrial automation – massive markets barely touched by AI today.
Priced at 35 times forward earnings, NVDA stock trades at a reasonable valuation, given that adjusted earnings are forecast to expand by 38% annually over the next five years.
