The stock market is a wealth-generating machine over the long term, even for conservative investors who buy index funds. But absolute fortunes have come to investors who took a chance on the most innovative technology stocks over the past few decades.
Nvidia (NVDA 6.18%) was founded in 1993. It went public six years later in 1999 with a market valuation of $625 million. The company is now worth $1.2 trillion, and it has created most of that value on the back of its world-leading artificial intelligence (AI) chips for the data center.
Investors who bought Nvidia stock at its initial public offering (IPO) and held until now would be sitting on a capital gain of 193,508%. In other words, a mere $520 invested back in 1999 would be worth over $1 million today.
Nvidia has a history of innovation
Nvidia was founded by a trio of engineers including Jensen Huang, who remains its president and CEO today. Inspired by the rise of personal computers, their goal was to bring 3D graphics to the gaming and media industries. Nvidia released its first graphics chip in 1995 and followed it up with several improved models until 1999.
That was the year Nvidia launched the first-ever GPU (graphics processing unit) chip under the GeForce brand. It was 50% more powerful than the company's prior chip, and it laid the groundwork for GeForce to go on and conquer the gaming industry. But Nvidia's attention has since turned to a higher calling.
The economy is shifting rapidly toward digitization, and businesses need cost-effective solutions to run their operations online. Thus evolved cloud computing, which involves businesses renting computing power from tech giants who manage centralized data centers. Nvidia's GPUs power an increasing number of those data centers, as they tend to be faster and more energy-efficient than traditional CPU (central processing unit) chips.
But the recent uptake in AI technologies is accelerating demand for Nvidia's data center hardware. AI models are developed, trained, and deployed in the cloud, so cloud giants like Microsoft and Amazon are racing to get their hands on Nvidia's data center chips designed specifically for AI workloads.
That includes the H100, which can speed up large language models (which power generative AI applications like ChatGPT) by 30 times over the company's previous model. But Nvidia just launched the H200, which will be twice as fast as the H100 while consuming half the amount of energy. That's a game changer for data center operators, because the new chip could drive more revenue while also reducing costs.
Image source: Getty Images.
Nvidia continues to obliterate all financial expectations
Nvidia reports revenue under four business units: data center, gaming, professional visualization, and automotive.
A couple of years ago, the gaming segment was Nvidia's largest driver of revenue. But the explosion in demand for data center chips capable of processing AI workloads -- like the H100 and upcoming H200 -- transformed the composition of the company's top line.
Here's how different Nvidia's revenue base looked in the recent third quarter of fiscal 2024 (ended Oct. 29), compared to the same period just two years ago:
|
Segment |
% of Revenue in Q3 Fiscal 2022 |
% of Revenue in Q3 Fiscal 2024 |
|---|---|---|
|
Data center |
41% |
80% |
|
Gaming |
45% |
16% |
|
Professional visualization |
8% |
2% |
|
Automotive |
2% |
1% |
|
Other |
3% |
1% |
Data source: Nvidia.
In fiscal Q3 2024 alone, Nvidia's data center revenue soared by 279% year over year to $14.5 billion. Nvidia expects to bring in $20 billion in revenue across all segments in the fourth quarter (ending Jan. 29), which is far above the $17 billion Wall Street predicted.
That will take Nvidia's total revenue to $58.8 billion for fiscal 2024 -- doubling its fiscal 2023 result, which is remarkable for a company of this size. The early forecasts for fiscal 2025 point to another record year for the AI giant.
It has come a long way since its first year as a public company, when it generated just $158 million in sales.
Nvidia could create many more millionaires over the long term
Nvidia entered 2023 with a share price of $143. It currently trades at $490, so roughly $770 billion of its $1.2 trillion valuation has been created this year alone. To be honest, Nvidia's best gains are in the rearview mirror; it's unlikely $520 invested today will turn into $1 million over the next 24 years the same way it did in the last two dozen years.
The larger Nvidia gets, the harder it is to grow quickly. When a new technology like AI gathers steam, most of the company's chip sales occur in the first few years. Eventually, the market will become saturated and there won't be enough new customers to sustain Nvidia's growth.
But that doesn't mean this company can't mint new millionaires over the long term. It simply means an investor will have to outlay a larger sum of money to potentially become a millionaire.
For example, a $100,000 investment could become $1 million within 20 years if Nvidia can grow its revenue by 12.2% annually, on average. Considering the company is on track to grow its revenue at a compound annual rate of 28% over the last 25 years (including fiscal 2024), it's a relatively comfortable bet even if the AI tailwind eventually moderates.
With that said, Huang says there is $1 trillion worth of existing data center infrastructure that needs upgrading to support accelerated computing and AI. Given Nvidia's dominant market position, it still has the potential to deliver above-trend growth for several more years, which could accelerate investors' path into the millionaire's club.
