Few investments come close to delivering the spectacular returns Nvidia (NASDAQ:NVDA) stock’s achieved over the last five years. Shares of the graphic processing unit (GPU) chip designer have surged almost 1,400%, turning a £5,000 investment back in May 2020 into £75,000.
A big part of this transformative growth came from surging artificial intelligence (AI)-enabling hardware demand. And since the AI revolution’s far from over, many investors are speculating what the future holds for Nvidia and its share price.
So if investors were to snap up another £5,000 worth of Nvidia stock today, how much money might they have a year from now?
What’s driving growth?
Five years ago, the bulk of Nvidia’s revenue stream came from its gaming segment. Historically, the firm’s GPUs have been primarily targeted at gamers looking to maximise performance.
But fancy graphics and higher frame rates are not the sole use of this computing power. Data centres have long relied on GPUs from companies like Nvidia for completing certain tasks. And around a quarter of sales in its 2020 fiscal year (ending in January) came from this industry.
Skip to FY 2025, and the picture looks very different. The group’s data centre segment now represents around 88% of the revenue stream, with customers rushing to upgrade their hardware in support of resource-intensive AI models and workloads. In terms of money, that equates to $115.2bn from AI – more than 10 times the company’s total full-year revenue of 2020!
With such explosive revenue growth paired with jaw-dropping operating margins, it’s no wonder the Nvidia share price has appreciated so much in such a relatively short space of time. The question now is, can it continue?
Here’s what the experts are saying
While there are a variety of opinions, the average consensus among institutional analysts is that Nvidia stock will reach $168 by this time next year. Compared to where the shares are currently trading, that represents a 25% return, enough to transform £5,000 into £6,250.
While that pales in comparison to the explosive gains achieved in recent years, 25% is still more than double the long-term stock market average gain, making it an attractive proposition. However, such forecasts are based on some critical assumptions.
In 2025, AI spending continues to accelerate. There’s no guarantee this trend will continue undisrupted. After all, data centre hardware spending is notoriously cyclical. However, even if demand remains robust, rising competition from alternative chip designers could start to encroach on Nvidia’s quasi-monopoly.
At the same time, the US trade barrier to China on Nvidia’s flagship models could prove problematic for maintaining momentum. Semiconductor export controls to China have already cost the company an estimated $15bn of sales. And should these constraints increase, Nvidia’s impressive growth seen to date could start to wane. Needless to say, that’s bad news for a stock trading at a premium valuation.
All things considered, Nvidia remains a potentially attractive proposition despite the risks and challenges it faces. Therefore, I think investors seeking exposure to the semiconductor and AI sectors may still want to consider this enterprise.
