There were likely many investors who hadn't heard of, or at least weren't familiar with, Nvidia (NVDA 4.08%) five years ago.
Then came ChatGPT in late 2022, and the market rally around artificial intelligence (AI) from 2023 onward put the GPU chip company squarely on the map. Nvidia has come to dominate the market for chips used in AI data centers, unleashing life-changing investment returns in the process.
Nvidia stock has returned 1,500% over just the past five years.
It's rarely too late to invest in a great business, but can buying Nvidia right now still set you up for life? Here is what you need to know.
Image source: Getty Images.
Nvidia's AI boom isn't over
AI is a bit of an arms race in the technology world. Companies are spending billions to build vast data centers housing thousands of servers and computer chips that work together to train and operate increasingly advanced AI models quickly, and at a growing scale.
Nvidia dominates this market, with an estimated 92% market share. Why so high? Nvidia planted the seeds for its dominance years ago; its CUDA programming language optimizes its GPU chips, which already excel at handling heavy workloads, for AI.
That one-two punch of high-end hardware and efficient software took the AI chip market by storm. Even if competitors start to make some headway, the broader AI opportunity is growing so rapidly that Nvidia continues to pile up chip sales at breakneck speed.
Research from McKinsey estimates that global data center spending for AI will exceed $5 trillion over the next five years alone, as companies continue to invest in infrastructure to support a world increasingly adopting AI. That doesn't even begin to scratch the surface of adjacent AI opportunities, including those that require localized computing resources, such as humanoid robotics or autonomous vehicles.
In other words, AI won't live in data centers forever. Nvidia already has its eyes on the future with hardware and software ecosystems in motion for developers across these early-stage market segments.
Fortune seekers face an uphill battle
So, while it's one thing to say that Nvidia could sustain its massive AI sales from these past several years, it's another thing to anticipate enough incremental growth on top of that to make the stock a life-changing investment from its current valuation.
The company recently made headlines as the first company to attain a $4 trillion market capitalization. For a stock that has risen 1,500% over the past five years, it wouldn't seem unrealistic for Nvidia's price to double at some point. But even that would push Nvidia's value to $8 trillion.
Huge numbers eventually start to succumb to gravitational effects. At $8 trillion, Nvidia would be roughly one-eighth of the total value of all U.S. stocks. It would be almost as large as the combined value of every publicly traded Chinese company, and larger than the stock market of every other country.
So, when you start projecting such a large company to double, triple, or grow enough to set you up for life, the numbers quickly go to eye-popping levels.
Can buying Nvidia today set you up for life? Here's your answer
To be clear, Nvidia's business doesn't appear to have peaked, and there could easily be some solid investment upside left. Shares still trade at roughly 39 times 2025 earnings estimates, which is a reasonable valuation for a company that analysts anticipate will grow earnings by an average of 28% annually over the next three to five years.
That said, Nvidia is likely too large now to replicate its past investment returns. Low-double-digit annualized returns seem more realistic, making Nvidia a fantastic addition to a diversified portfolio, just not the life-altering stock it has been to this point.
