Nvidia (NVDA +1.68%) has become a household name over the past few years as the artificial intelligence (AI) boom took off and demand for its semiconductor designs became a must-have component in most AI data centers.
Surging demand for AI processors has resulted in Nvidia's share price rising by more than 1,200% over the past five years. And while there's increasing talk of an AI bubble, Nvidia's sales and earnings growth are very real -- as are the continued investments in artificial intelligence infrastructure.
Could that help Nvidia investors become millionaires? Here's why Nvidia stock could remain a good investment, but unlikely to mint millionaires in the coming years.
Image source: Nvidia.
What Nvidia has going for it
Nvidia dominates the AI processor space because its powerful chips are especially well suited for helping artificial intelligence learn. When tech giants build new data centers -- and almost all of them are right now -- they often pack them with Nvidia's processors. The result has been a boon to Nvidia's data center revenue, which increased 56% to $41.1 billion in the most recent quarter.
The company's earnings have also risen dramatically. Nvidia's non-GAAP (generally accepted accounting principles) earnings increased 54% to $1.05 per share in the recently reported third quarter. Even with its investments in new technology, Nvidia finished its recent quarter with an impressive $13.5 billion, giving it plenty of cash to invest in new AI chips to tap further into demand.
And then there's demand. Nvidia CEO Jensen Huang believes tech companies could spend between $3 trillion and $4 trillion on data center infrastructure over the next five years. The reason for the massive spending spree is that no tech giant -- Meta Platforms, Alphabet, OpenAI, Microsoft, etc. -- wants to fall behind, and they all believe that ramping up infrastructure spending right now is the best way to keep pace.
This could fuel many more years of growth for Nvidia, helping to lift the AI stock higher than it is now and making it a great addition to nearly any portfolio.
NASDAQ: NVDA
Key Data Points
Why Nvidia probably won't mint new millionaires
However, despite its potential upside, it's unlikely that Nvidia will create new millionaires over the coming years. That's mostly because it would be very difficult for the company to repeat its five-year, 1,200% returns.
When OpenAI debuted ChatGPT and the AI arms race began, many investors rushed in to buy the leading AI semiconductor company's shares so that they wouldn't miss out. And while Nvidia's stock could still climb as its sales and earnings benefit from AI investments, the initial catalyst is now over.
Moreover, there are growing indications that the economy is slowing down. Household consumer debt has reached an all-time high of $18.6 trillion, and the number of layoffs in October hit a 22-year high for the month.
This hasn't resulted in a slowdown in AI spending yet, but tech companies aren't immune to economic slowdowns. If the economy were to slip into a recession, it could curb some of their AI spending in the near future. While there's no guarantee of a slowdown, even the possibility could eventually slow some spending on AI infrastructure and enthusiasm in the market.
Nvidia is still worth owning
While Nvidia may not make you a millionaire at this point, I think it's still worth owning. The company holds a leading position in AI semiconductors, and spending on artificial intelligence is likely to continue in the coming years.
With the company's $13.5 billion in free cash flow, Nvidia has ample capital to reinvest in the business and maintain its position at the forefront of the AI semiconductor boom.
All of this means that long-term investors looking to hold on to the stock for at least five years have a good chance of being rewarded for investing in this artificial intelligence leader.
