Investors who purchased Nvidia (NVDA +1.31%) in 2016 made the decision of a lifetime. Shares of the leading artificial intelligence (AI) infrastructure company are up 22,690% just in the past 10 years (as of March 17).
Nvidia has become the defining company of the 2020s. And the future looks bright. Is this leading AI stock going to $500 one day?
Image source: The Motley Fool.
Envision a world dominated by AI
Nvidia shares would need to rise 173% from the recent price of $183 to reach $500. This is certainly a possibility, assuming the powerful trends that we've seen don't let up.
Obviously, it depends largely on the massive AI-related investments to continue for the foreseeable future. This will occur if there's tangible evidence that AI spending, by the hyperscalers that make up Nvidia's customer base, is actually starting to generate adequate returns.
There's no shortage of criticism that this is all wasteful spending. The jury is still out on what the future will bring.
There are AI's strongest bulls, though, which seem skewed to the tech and venture capital industries, that believe the technology is going to fundamentally reshape the economy. This means that businesses will experience an unprecedented productivity boom, as most tasks, from knowledge work to physical labor, become completely automated.
It's impossible to predict how everything will play out. But Nvidia CEO Jensen Huang just gave investors a trillion reasons to cheer. At the company's GPU Technology Conference, he revealed his expectation that there will be $1 trillion worth of orders for its Blackwell and Vera Rubin architectures through 2027, double last year's forecast.
It's very easy to be bullish
According to consensus estimates provided by Wall Street research analysts, Nvidia's revenue and earnings per share are projected to increase at compound annual rates of 36.5% and 39.4%, respectively, over the next three fiscal years. This is a very exciting outlook that can make any investor optimistic about Nvidia's future.
What's more, the market might actually be underestimating the business. This AI stock is currently trading at a forward price-to-earnings ratio of 22.5.
Investors might be thinking about the risk of a slowdown related to AI spending. Should any of Nvidia's customers decide that they want to operate with financial discipline and start to curtail their investments for whatever reason, it could set off a chain reaction that leads to a downturn.
But based on growth projections and the current valuation, it's almost impossible not to be bullish about Nvidia over the next five years and beyond.
NASDAQ: NVDA
Key Data Points
A matter of when, not if
Investors betting on a $500 stock price must have a strong belief that AI progress will continue for a very long time, necessitating greater buying of Nvidia's chips. This is despite the possibility that there could be periods of cyclicality.
That seems like a reasonable perspective to have, especially if you lengthen your time horizon. Therefore, I think it's only a matter of time until Nvidia gets to $500 per share.
