There are no two ways about it: Nvidia (NVDA 0.90%) stock has been an unqualified success for long-term shareholders. The stock has gained more than 10,730% over the past decade, and that's not all. Shares are up 193% so far this year (as of this writing), more than 15 times the return of the S&P 500, adding to its sterling run.
There have been multiple catalysts that helped propel the stock higher. Nvidia's graphics processing units (GPUs) are the gold standard for gamers, and the continuing adoption of cloud computing and the need to speed information to and from data centers also requires its state-of-the-art processors. Then, there are recent advances in artificial intelligence (AI), which is behind the stock's more recent gains.
What does all this mean for investors who sat out Nvidia's blistering rally? Should they buy the stock now in anticipation of future gains or simply look for greener pastures on account of the company's nosebleed valuation? Let's dig into the data to see what we find.

Image source: Getty Images.
A long and distinguished record of performance
While it's easy to look at Nvidia stock and conclude that the best gains are in the rearview mirror, that's been the predominant sentiment for years. Yet Nvidia continues to defy detractors by anticipating -- and even encouraging -- the prevailing secular tailwinds and developing its technology accordingly.
Mastering parallel processing -- or the ability to run a multitude of complex mathematical computations simultaneously -- has been one of the keys to Nvidia's unmitigated success. It turns out this technology works equally well at rendering lifelike images in video games, moving data through the ether at lightning speeds, and handling the sheer computational horsepower required for AI. Furthermore, gaming, cloud computing, and AI are all growth industries, which will likely continue to propel Nvidia stock even higher.
The events of 2022 took a toll, but Nvidia's rebound has been superb -- even as its gaming segment has yet to fully recover. For its fiscal 2024 second quarter (ended July 30), the gaming segment finally returned to growth after four consecutive quarters of year-over-year declines.
When faced with persistent inflation and economic headwinds, hard-core gamers chose to get by with their existing graphics card rather than upgrade to Nvidia's latest and greatest processors. Now that the economy is improving, pent-up demand will hasten the gaming segment's recovery.
It was Nvidia's data center segment that did the heavy lifting last year, growing 41% even in the face of a challenging environment. However, the advent of generative AI has been stunning, and adoption has been growing like wildfire. Growth in the data center segment -- which includes AI processors -- has exploded so far this year. During its fiscal 2024 second quarter (ended July 30), Nvidia generated record data center revenue of $10 billion, up 171% year over year, leaving little doubt as to what's driving this train.
CEO Jensen Huang was clear about the catalyst:
During the quarter, major cloud service providers announced massive Nvidia H100 AI infrastructures. Leading enterprise IT system and software providers announced partnerships to bring Nvidia AI to every industry. The race is on to adopt generative AI.
There's likely more where that came from. For its fiscal third quarter, Nvidia forecasts record revenue of $16 billion, up 139% year over year.
This could be a game-changer for Nvidia and its investors. Why? The company has a virtual monopoly on the processors used to train and run AI systems. While estimates vary, Nvidia is believed to control between 80% and 95% of the AI chip market. It stands to reason that it will control a dominant share of the generative AI market as well.
Estimates are all over the map regarding the size of the AI opportunity. A report by investment bank Goldman Sachs posits that AI will increase labor productivity, driving a 7% or $7 trillion increase in global GDP. Analysts at Morgan Stanley came to a similar conclusion but were slightly less bullish, citing a $6 trillion market. If those numbers are anywhere close to reality, the opportunity for Nvidia is vast.
Data by YCharts.
What about the valuation?
There's no doubt that Nvidia's valuation is steep, but I would argue that its growth justifies the hefty price tag. So far this year, Nvidia's revenue has more than doubled, but its earnings per share have grown 335%. At the same time, its trailing 12-month price-to-earnings ratio actually declined as its profits soared.
This illustrates that for investors with a long-term outlook and a willingness to endure some gut-wrenching volatility, Nvidia's growth justifies the pricey valuation. Nvidia is well positioned as a picks-and-shovels play for the continuing AI gold rush. Wedbush analyst Daniel Ives suggests the accelerating adoption of AI could continue for the coming decade, helping drive the stock to new heights.
Considering the magnitude of the opportunity and the likelihood that demand for AI could continue for years, I would submit that Nvidia is worthy of a premium valuation.