Is Nvidia stock a good long term buy?
Financial Strength
Assuming Nvidia does hit $184.5 billion in revenue in fiscal 2027, its top line would have increased at a compound annual rate of 45%. If the semiconductor giant's growth tapers off in the two that follow years to, let's say 25% a year, its revenue could reach $288 billion after five years.
As of Q1 2024, Nvidia has garnered profits of $42.6 billion over the past four quarters. Hence, our model—incorporating only modest returns—demands that profits wax at 25% annually over a seven-year span. Of course, the biggest percentage gains would come in the earlier period.
Overall, analysts continue to remain bullish about Nvidia stock, even as they've struggled to keep up with price-target hikes post-stock split. The consensus rating is a "Strong Buy,” with a mean target price of $139.41, indicating an upside potential of about 16.7% to current prices.
Nvidia's consensus long-term growth rate is 43% a year, which is among the highest for S&P 500 companies and multiples that of Microsoft and Apple. At that rate, Nvidia's operating earnings per share should climb to $80 in four years from $19 today, resulting in a long-term price/earnings ratio, let's call it, of 18.
10-years: A $1,000 investment in Nvidia 10 years ago has compounded at 74.5 percent annually and would be worth $261,490.87 today.
Hence, based on current estimates, the chances of Nvidia's share price crossing $1,000 in the next decade appear slim. These projections, however, can change in case Nvidia makes even more dramatic advances in AI technologies in the coming years.
Nvidia stock's longer-term performance is phenomenal
That's more than 100 times the S&P 500 index's return of 230%. Put another way, a $1,000 investment in Nvidia stock a decade ago would now be worth more than $250,000. A stock's past performance is no guarantee of its future performance.
There's an easy answer to this question: It's absolutely not too late to buy Nvidia stock.
Nvidia shares rose 3% on Thursday, recovering from a 7% drop in the previous session as Donald Trump's comments on Taiwan raised geopolitical concerns. Nvidia's rise came after TSMC said demand remained high while supply was constrained for high-end AI chips, which TSMC manufactures for Nvidia.
How high can Nvidia stock go?
Analysts are expecting the company's earnings to increase at an annual rate of 43% for the next five years. Based on its fiscal 2024 earnings of $1.21 per share, Nvidia's bottom line could jump to $7.24 per share after five years.
A few customers make up a huge amount of NVIDIA's revenue, which is a huge risk for long-term profitability. NVIDIA (NVDA 3.40%) is the hottest name on the stock market and investors are expecting explosive artificial intelligence growth for years to come.
How Nvidia's Post-Split Stock Could Rise Tenfold. In the year since Nvidia's boffo Q1 FY 2024 report released in May 2023, the company's stock has risen 248%. Nvidia stock — after splitting 10-for-1 early in June — could rise from $100 to $1,000 by 2026.
Investors can expect solid growth over the next three years
However, certain analysts are expecting Nvidia's revenue to grow even faster by 2027 and outpace Wall Street's expectations. As such, there is a good chance that Nvidia will continue to remain a top growth stock over the next three years as well.
A $20,000 investment made in the semiconductor giant 10 years ago would be worth more than $3.4 million today -- up by around 170 times in value. It is also worth noting that the company has taken less than a decade to turn a $20,000 investment into precisely a $1 million.
NASDAQ: NVDA
So, despite its meteoric rise since last year, the AI market still has plenty of room to run, with Nvidia well-positioned to keep seeing major gains and creating millionaires.
Since Nvidia's P/E ratio is nearly 74, the company would need to generate annual EPS growth of roughly 74% over the next five years to be undervalued today. Some investors could believe this lofty growth rate is quite possible. After all, Nvidia's EPS skyrocketed 629% year over year in the first quarter of 2024.
Financial Strength
Nvidia is in outstanding financial health. As of April 2024, the company held $31.4 billion in cash and investments, as compared with $9.7 billion in short-term and long-term debt. Semiconductor firms tend to hold large cash balances to help them navigate the cycles of the chip industry.
The largest owners of Nvidia stock are asset managers, such as BlackRock and Vanguard. These companies hold Nvidia stock in mutual funds and ETFs on behalf of their clients. Among individual investors, the largest shareholders are company insiders and board members, like founder Jensen Huang.
AI colossus Nvidia was the most anticipated stock split of 2024. Three brand-name businesses with well-defined competitive advantages are likely to follow in Nvidia's footsteps and become Wall Street's next stock-split stocks.
Should I hold or sell Nvidia stock?
Based on analyst ratings, Nvidia's 12-month average price target is $140.85. Nvidia has 9.66% upside potential, based on the analysts' average price target. Nvidia has a consensus rating of Strong Buy which is based on 37 buy ratings, 4 hold ratings and 0 sell ratings.
The strong momentum from last year's AI euphoria carried into 2024, and Nvidia investors haven't stopped buying up the stock. To put this into context, shares of Nvidia have increased almost 800% since January 2023.
As of 2024-07-20, the Fair Value of NVIDIA Corp (NVDA) is 43.29 USD. This value is based on the Peter Lynch's Fair Value formula. With the current market price of 117.93 USD, the upside of NVIDIA Corp is -63.3%.
Consensus estimates predict Nvidia's earnings will increase at an annual rate of just over 35% for the next five years. Based on the company's fiscal 2024 earnings of $12.96 per share, its bottom line could jump to $58.11 per share after five years, assuming it does increase at the predicted rate.
Geopolitical tensions are dragging down some of the tech sector's biggest names today, including Nvidia (NASDAQ:NVDA). Some statements from Donald Trump have cast doubt over the future of companies within the semiconductor manufacturing space, such as Taiwan Semiconductor Manufacturing (NYSE:TSM) and NVDA stock.
