Few S&P 500 stocks have come close to delivering the explosive gains of Nvidia (NASDAQ:NVDA). The GPU designer has gone from a niche video game hardware enterprise to the world’s most advanced artificial intelligence (AI) semiconductor business. And over the last nine years, the stock’s up a jaw-dropping 12,220%!
To put this into perspective, that’s an average annualised return of 70.7%. And it’s enough to transform a £10,000 initial investment into over £1.2m. Millionaire-making stocks like this are rare. But even after delivering such phenomenal growth, some analysts believe there are yet even more gains on the horizon.
So how much higher could the Nvidia share price climb?
What the experts are saying
As usual, there’s a broad range of opinions about where the Nvidia share price might end up over the next 12 months.
- Analysts at Wells Fargo have placed its price target at $185 per share.
- Rosenblatt’s Kevin Cassidy currently has one of the most bullish predictions of $220 per share.
- Bank of America’s Vivek Arya believes the stock will reach $200.
Despite the spread in price targets, the primary drivers behind each analyst’s bullish sentiment seem to be consistent. The rollout of Nvidia’s Blackwell AI accelerator chips is anticipated to significantly expand the group’s data centre revenue while simultaneously bolstering profit margins.
Considering the massive $2trn addressable market size of AI infrastructure, these expectations don’t seem outrageous. And with free cash flow generation going through the roof, management has ample financial flexibility to steer capital toward research & development as well as share buybacks.
With that in mind, it’s easy to understand why analysts are so bullish. However, even with this strong positive sentiment, the company still has plenty of threats and challenges to overcome.
Key risks
Given the enormous market opportunity for AI accelerator chips, other technology titans such as Arista Networks, Microsoft, and Amazon have begun developing their own in-house solutions. Nvidia certainly has the advantage of a head start. But the firm’s pricing power could start feeling the pressure as major hyperscalers look for more cost-effective solutions.
There’s also the growing uncertainty regarding mounting trade tensions between the US and China. Export controls have already been introduced that prevent Nvidia from selling its newer chips to Chinese customers, compromising billions in annual sales.
Another chief concern is that Nvidia’s revenue stream has become largely dependent on data centres – a market that’s notoriously cyclical. Should the AI spending boom begin to normalise, Nvidia’s impressive growth could slow, rapidly extinguishing investor hype and sentiment.
The bottom line
Betting against Nvidia has proven to be a costly mistake. Management’s impressive capital allocation skills and knack for capturing market share have made it one of the best-performing stocks of the S&P 500. Sadly, another 120x return doesn’t seem likely, considering the business now has a market cap of $3.5trn. But that doesn’t mean more growth can’t be unlocked. So for investors comfortable with taking a risk, Nvidia shares might still be worth closer inspection today.
