Investing in solid companies for the long haul has always been a golden ticket to wealth in the stock market. It’s a winning formula that not only rides the wave of secular growth trends but also harnesses the power of compounding over time.
Take, for instance, a decade-old $10,000 investment in Nvidia (NASDAQ: NVDA), now sitting pretty at a value of $1.9 million. That’s a jaw-dropping annual return of close to 70% over the past 10 years. Nvidia investors have reaped the rewards of the company’s expanding footprint in gaming, automotive, and data center markets – a testament to the wealth-building potential of holding onto quality stocks for extended periods.
While turning $10,000 into almost $2 million remains a rarity, smartly placing surplus cash into an undervalued stock with long-term growth prospects could be a prudent move after attending to essential financial obligations. This not only unlocks the magic of compounding and secular growth narratives but also lays the groundwork for a well-rounded investment portfolio.
A closer examination of Nvidia delves into why considering this undervalued gem in a diversified portfolio might pave the way for investors to reach millionaire status in the future.
The Case for Nvidia’s Undervaluation
Despite a staggering 500% surge in Nvidia’s stock price since the outset of 2023, trading at 36 times sales and 74 times trailing earnings, the company’s potential growth trajectory propels it into undervalued territory. This assertion finds support in Nvidia’s forward price-to-earnings (P/E) ratio of 36, lower than its five-year average forward earnings multiple of 39. Furthermore, Nvidia’s highly favorable Price/Earnings-to-Growth (PEG) ratio reinforces the perception of undervaluation.
The PEG ratio serves as a litmus test by dividing a stock’s P/E ratio by its projected annual earnings growth rate, offering insights into the level of over or undervaluation relative to growth prospects. An Nvidia PEG ratio below 1 signals undervaluation, a compelling argument supported by the chart showcasing the same.
Investing in Nvidia at its current valuation seems astute, considering the lucrative growth opportunities awaiting the tech titan across various market segments.
The Lucrative Growth Avenues for Nvidia
Nvidia’s meteoric rise in the past year owes much to the world of Artificial Intelligence (AI) that underpins its stock rally. This upswing in Nvidia’s fortunes is buttressed by substantial revenue and earnings growth, with analysts projecting sustained momentum over the next three fiscal years after a stellar fiscal 2024.
The optimism surrounding Nvidia’s future is palpable, epitomized by analyst projections envisioning a robust expansion in data center revenue, set to soar to $89 billion by fiscal 2025 and an astounding $280 billion by fiscal 2028. These bullish forecasts gain credence from the burgeoning global AI chip market slated to hit $400 billion in revenue by 2027, where Nvidia’s dominance reigns supreme with an approximate market hold of over 95%.
Nvidia’s strategic forays into AI-driven products, from cutting-edge AI graphics cards to custom AI chips, alongside its incursions into lucrative domains such as digital twins and AI personal computers, herald multibillion-dollar opportunities for the company. The potential addressable market for Nvidia’s Omniverse enterprise software stands at $150 billion, with an expected surge of gaming sales by a factor of five in the AI PC market over the ensuing four years.
This compelling narrative underscores Nvidia’s mettle as a premier growth stock poised to rake in substantial gains, mirroring the market’s inclination to reward robust growth trajectories.
Considering an Investment in Nvidia
Prior to diving into Nvidia stock, a word of caution:
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Unveiling the hidden potential of Nvidia stock is akin to striking gold in the vast expanse of the investment landscape. With undervaluation as its compass and growth opportunities as the guiding stars, embarking on this journey with Nvidia could propel investors on the path to securing a million-dollar portfolio.
Disclaimer: The author has no position in any stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices and Nvidia.
