Many of the company’s early investors have become rich. But is it too late to board this gravy train?
The stock market is ideal for slowly building wealth over decades. However, some investors have sped things up by betting on the right companies at the right times.
Nvidia (NVDA -2.13%) is a great example. If you had bought $5,000 worth of its stock 10 years ago, you would have around $1.25 million today — a return of 25,000%. Does the legendary chipmaker still have millionaire-maker potential? Let’s dig deeper to find out.
It’s constantly reinventing itself
In 1993, Nvidia was founded to pioneer a niche computer chip called the graphics processing unit (GPU). These chips excel at processing multiple tasks simultaneously, making them ideal for rendering complex visuals. Most of Nvidia’s early growth came from serving the video game industry, where its chips were used in custom PCs and consoles.
However, the 2009 launch of Bitcoin (and the subsequent rise of cryptocurrencies) was the company’s first big break. At the time, most blockchain networks ran on a system called proof-of-work (PoW), which required participants called miners to solve complex computations to validate transactions and create new coins.
GPUs were perfect for this task. And Nvidia’s revenue and profits soared in response to this new market. As mining demand faded after the pandemic, ChatGPT’s launch in 2022 kicked off another boom cycle for the company and its quintessential hardware products.
Lessons from the past
While past performance doesn’t guarantee future results, Nvidia’s history demonstrates a distinct boom-and-bust pattern. The chipmaker has produced many millionaires over the long term, but investors who bought shares at the peaks of previous hype cycles faced substantial losses as they waited for the company to discover new opportunities.
Unfortunately, the AI hype cycle is getting long in the tooth. And Wall Street is getting nervous. According to projections from the nonprofit RAND Corporation, more than 80% of AI projects could eventually fail — double the rate for non-AI-related tech start-ups.
There are many reasons for the high failure rate, but the most obvious is that AI technology simply isn’t easy to monetize. Mainstream large language models (LLMs) like ChatGPT or Gemini are fun to play around with, but they can be unreliable and expensive to run because of the high costs of hardware and energy.
These platforms also face stiff competition from free, open-source alternatives like Meta Platform‘s Llama or Elon Musk’s Grok. If the consumer-facing software side of the market doesn’t start carrying its weight, demand growth for Nvidia’s hardware could eventually slow or even reverse.
Image source: Getty Images.
Is Nvidia a millionaire maker?
If Nvidia’s business is on the verge of a spectacular crash, there have been no signs of it yet. Second-quarter earnings were another slam dunk, with revenue increasing 122% year over year to $30 billion while operating income jumped 156% to $19.9 billion.
And management believes the launch of GPUs based on the new Blackwell architecture will help maintain its spectacular momentum over the coming years.
The stock’s valuation is also extremely attractive. With a forward price-to-earnings multiple (P/E) of 41, shares are more expensive than the Nasdaq 100 estimate of 29. But this is actually surprisingly cheap for a company growing its top and bottom lines at triple-digit rates.
The market seems to be discounting Nvidia’s shares on fears that the AI industry might not meet expectations. The stock still has millionaire-maker potential, but long-term investors might want to wait for the current hype cycle to fade before betting on the chipmaker’s next big break.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.