Semiconductor giant Nvidia (NVDA +1.34%) has been a hot stock for some time now -- for good reason. It has averaged annualized gains of 52% over the past 15 years. That was enough to turn a single $10,000 investment 15 years ago into a stake worth $5.9 million (with dividends reinvested) or $5.4 million (without the reinvestment of dividends).
What if you buy into it today, though? How big could your stake in it become by, say, 2030? Let's take a look.
Image source: The Motley Fool.
Time for a little math
Let's start with a caveat: Whatever estimate we come up with will be just that -- an estimate. It will be based on the stock's growth rate -- which over the past three years has averaged nearly 70% per year! Over the past one year, it has gained nearly 20%. (That 20% might seem puny, but remember that over many decades, the stock market has averaged annual gains of close to 10%. So a 20% gain is still pretty good.)
But how quickly will Nvidia grow over the coming four years? Well, let's pick a number between that 20% and the longer-term rate of 52%. Let's say 30%.
The stock recently traded at about $214 per share. If it gains 30% annually for four years, it will end up priced around $611 per share. That would be a total gain of 185.6%. Under that scenario, if you put $10,000 into it now, by September 2030, your stake would be worth about $28,560 -- and that's without counting or reinvesting its dividends, which are currently $0.25 per share quarterly.
NASDAQ: NVDA
Key Data Points
Putting the estimate in context
Here are some things to keep in mind regarding that estimate of a 185% gain:
- Nvidia could keep growing at 50% over the coming years, giving you a much bigger gain.
- Nvidia shares could also plunge in the coming years. This could be due to some unforeseen problem with the company, a slowdown in its business, or simply due to the stock market crashing. The U.S. stock market does crash now and then -- though so far, it has always eventually recovered from those downturns and gone on to set new highs. That's why it's good to be a long-term investor. Note, too, that when the market pulls back, growth stocks like Nvidia often fall extra hard (typically before eventually recovering).
Much will depend on how well Nvidia executes its strategies, and on that count, there's much to be optimistic about:
- Nvidia's recent purchase of Hugging Face will give it access to a large developer ecosystem as competition in AI hardware increases. (More than 200,000 companies use Hugging Face to work with AI models.)
- The company recently reported terrific second-quarter results, with revenue up 106% year over year to $96 billion, and revenue from data centers up 117% to $89 billion.
- The stock seems undervalued, trading at a forward price-to-earnings (P/E) ratio of 23, well below its five-year average of 34, and a price-to-cash-flow ratio of 30, well below its five-year average of 51.
Nvidia has a lot going for it.
