Earlier this month, the iconic tech giant Nvidia (NASDAQ: NVDA) made waves by briefly overtaking Microsoft to claim the title of the world’s most valuable company. While some may wonder if Nvidia has reached its pinnacle, history shows us that reaching such milestones does not necessarily signal the end of a stock’s growth trajectory.
The Sustainability of Success
Apple’s journey to becoming the world’s first trillion-dollar company in 2018 offers an illustrative example. Many believed that reaching that milestone would mark the peak for the tech giant. Yet, within just two years, Apple soared to a $2 trillion market cap, and in 2023, it crossed the $3 trillion mark. Those who underestimated Apple’s potential missed out on significant gains. These historical instances demonstrate that Nvidia may still have ample room to ascend.
Riding the Crest of the AI Wave
Nvidia stands as a frontrunner in the ongoing artificial intelligence (AI) revolution, with its GPU designs spearheading AI integration in data centers. The company’s dominance, boasting over 80% of the market share, is upheld by its CUDA software platform, which established an industry standard long before AI’s surge. Nvidia’s exceptional revenue growth, including a massive 262% surge to $26 billion in the most recent quarter, is a testament to the insatiable demand for its AI offerings.
The company’s commitment to innovation is unwavering, evidenced by its continuous development of new GPU architecture platforms. The recent introduction of the Blackwell and upcoming Rubin platforms ensures customers stay at the vanguard of technological advancement. Despite soaring demand, Nvidia faces the challenge of meeting supply as customers clamor for its latest chips.
The Trajectory of Nvidia’s Stock
Despite Nvidia’s astounding growth, its stock remains reasonably valued given its promising outlook. Trading at a forward price-to-earnings (P/E) ratio of 44, the company is far from overpriced, especially after recording a 262% revenue surge. While Nvidia’s revenue growth will eventually taper off, projections indicate substantial growth in the coming years, potentially reaching a revenue of $328 billion by 2027.
If Nvidia maintains its quarter-over-quarter adjusted operating expense growth rate of 13% until 2030 and applies a 20% tax rate to its operating income, it could amass $165 billion in adjusted earnings by 2027. With a 30 times P/E multiple, Nvidia’s market cap could soar to $5 trillion. Although projections are subject to change, the company’s future appears bright, positioning it as a viable investment option.
As investors contemplate investing in Nvidia, they should consider the growth trajectory and historical performance of the stock. While Nvidia did not make the recent list of top 10 stocks identified by the Motley Fool Stock Advisor team, its track record is a testament to its potential. An investment of $1,000 in Nvidia in 2005 would have yielded a substantial return, highlighting the stock’s historic growth trajectory.