Predicting where a company might be in five years isn't an exact science, to say the least. Doing so amid tariff uncertainty and a potential economic slowdown exacerbates the difficulty.
But if you're considering buying the semiconductor giant Nvidia (NVDA +0.53%), it's important to work through some of the potential outcomes over the next few years, nonetheless. Only by assessing some of the pros and cons can you know whether you'll feel comfortable buying and holding the company's stock over the long term.
Here's what could go wrong with Nvidia stock over the next five years and what might go right.
Image source: Nvidia.
The storm clouds
So far, President Trump's tariffs have excluded semiconductors, but he's indicated that might not be the case forever. He told a group of reporters a few days ago that semiconductor tariffs are coming "very soon."
It's worth noting that Trump has backed off some tariff threats in the past, including a big concession on Wednesday. So there's no knowing for sure if tariffs on semiconductors will ever come. For its part, Nvidia doesn't manufacture its processors in-house and instead relies mostly on Taiwan Semiconductor Manufacturing for that.
However, if tariffs are applied to semiconductors, it would be bad for Nvidia. Nvidia would have to absorb higher costs from selling its chips to customers or pass on the cost. Companies in China also purchase lots of Nvidia processors. With the U.S. and China currently in a trade war, semiconductor sales there could get swept into the turmoil.
There are other potential problems for Nvidia, too. If an economic slowdown occurs, tech giants might pull back on new, expensive data center spending. Microsoft notably recently backed away from two artificial intelligence data center projects.
If more companies do the same, it could slow Nvidia's processor sales, which have boomed as tech giants have invested hundreds of billions of dollars to build advanced data centers for AI.
The silver lining
I don't want to downplay the tariff uncertainty or its potential implications for Nvidia's business, but the flip side is that tariffs will likely, eventually, get sorted out. A lot can change in the next five years.
It's hard to see past what's currently happening, but it's worth remembering that five years in the past, we had just begun the COVID-19 pandemic. Much has changed since then.
NASDAQ: NVDA
Key Data Points
Just as important, most tech companies have not indicated that they want to back off from their data center spending. Nvidia CEO Jensen Huang thinks spending could increase to $2 trillion by 2030. Even with Microsoft backing off of two data center projects, there's no indication that a sectorwide spending pullback is occurring. Amazon, Meta, Alphabet, and Microsoft intend to invest $320 billion this year in artificial intelligence technologies and data centers. That's just this year.
The takeaway here is that these tech companies view AI as one of the most consequential technologies to come along in decades. They have zero incentive to miss out on this or let their rivals outpace them. The AI race will likely fuel data center spending and the need to upgrade processors for years to come, leading to increased sales for Nvidia.
The most likely outcome
There are two very important things to consider when thinking about Nvidia right now: We're still at the beginning of the AI boom, and Nvidia is the dominant chip designer for AI.
Nvidia's processors account for about 70% to 95% of AI processors. That lead will not easily be overcome. And with an artificial intelligence race just beginning, I think it's premature to assume tech companies will back off spending. The focus of large tech companies on offering the best AI services will likely be a boon to Nvidia's processor business for years to come.
Will Nvidia's stock see similar 1,400% gains as it has over the past five years? Very doubtful. However, with its leading position in AI processors I think it still has the potential to outpace the broader market over the next five years.
