Investing to hold a stock for decades requires a different perspective. Valuations matter less when you're looking so far ahead. It's more about strong fundamentals, big-picture trends, and how a company plants seeds for long-term growth.
Chip company Nvidia (NVDA -5.32%) has received praise from Wall Street for its monster growth due to a surge in artificial intelligence (AI) chip spending throughout the technology sector.
But these long-term factors make it my top AI stock for the upcoming decades.
Leaving no stone unturned
Nvidia's success stems from its early lead in the AI chip market. The company specializes in graphics processing units (GPUs) for heavy workloads. The computing required to train and operate AI models is very intense. Nvidia saw this coming and positioned its H100 as the early standard for AI systems. Nvidia sprang to a market share that some estimate is as high as 90%. Nvidia has since announced newer, more advanced chip models.
What's just as impressive is the company's proactive approach to seeking out potential threats before they threaten Nvidia. For example, Nvidia gets much of its business from major tech companies like Microsoft, Amazon, Meta Platforms, and Alphabet. All are working on custom AI chips as an alternative to Nvidia's. To protect itself, Nvidia is assembling a new business unit to pursue these custom chip opportunities. In other words, Nvidia will sell you its chips or help you design yours.
Additionally, Nvidia is investing in upstart companies with long-term growth potential. It recently disclosed investments in five smaller AI companies and is partnering with Microsoft and OpenAI on a joint venture with Figure, a humanoid robotics start-up. Nvidia isn't staying in its lane and just selling chips; it's spreading its fingerprints all over the AI industry.
Building a financial moat
Nvidia's growth does more than increase the share price; the company's cash flow is exploding. Over the past year, Nvidia has amassed over $27 billion in free cash flow. The company now has $26 billion in cash on its balance sheet against just $10 billion in long-term debt.
That's becoming a financial war chest that Nvidia can use strategically to play offense or defense against competition or return a ton of money to investors via share repurchases and dividends.
NVDA Revenue (TTM) data by YCharts
Analysts believe Nvidia's revenue could hit $157 billion in 2027, putting its free cash flow somewhere near $70 billion annually if you assume the same 44% conversion rate. That would make Nvidia a financial force that's difficult to compete with.
Eyeing the future
The cool part about long-term investing is imagining the future and what companies could play a role in shaping it. Several industries that are young and new today might be part of everyday life in 10 or 20 years.
Some examples with estimated growth forecasts include:
- Autonomous driving: $2.2 trillion market by 2030.
- Humanoid robotics: $38 billion market by 2035.
- Electric aircraft: $1.5 trillion market by 2035.
- Space travel: $17 billion market by 2032.
All of these are nascent industries with tremendous long-term potential. There's a logical argument that AI will be essential to achieving all of them, and that crumb trail could ultimately lead back to Nvidia's chips. Look at companies through this scope when investing decades into the future.
A company's success will be defined by what comes in future generations, not by its growth from one quarter to another. Unless Nvidia's market share crumbles, it's hard not to imagine the company playing a role in some or all of these new industries and others.
Whether it's Nvidia or some other company you feel confident about for the long term, buy some shares now and then and follow the company's developments over time. Hold the stock and let innovation and growth do the heavy lifting in your portfolio.
