Nvidia (NASDAQ: NVDA) is the best-performing S&P 500 stock in the past decade. Over 20 years, it has crushed the market, growing from a $5bn market cap into the world’s largest firm, valued at a stonking $4.4trn.
As such, Nvidia is a powerful reminder that picking the right stock can leave passive index investing in the dust. It’s up around 75,000% since 2005!
Back in mid-May, Nvidia was trading for $135. As I write, it’s now at $180, which is a three-month gain of 33%. This means a £20,000 investment made back then would now be worth roughly £26,600 (excluding currency moves).
The share price is up 1,350% in five years.
Why the rebound?
A couple of things have happened since May to push the stock higher. First, markets have rebounded strongly since President Trump’s tariffs bombshell in early April.
Next, on 28 May, Nvidia reported Q1 results. This showed that revenue surged 69% year on year to $44.1bn, with data centre sales up 73%. Net profit jumped 26% to $18.8bn.
CEO Jensen Huang said these reassuring words: “Global demand for Nvidia’s AI infrastructure is incredibly strong.”
Looking ahead to Q2, which has just ended and will be reported next week, Nvidia expects revenue of about $45bn (50% year-on-year growth). This put to bed any notions that the AI revolution is running out of steam.
The stock got a further boost in July when it was announced that Nvidia would be allowed to resume sales of its modified H20 chips to China. And while this will involve paying a somewhat unconventional 15% revenue share to the government – essentially a tax – it’s better to have some sales coming from China’s massive AI market than none at all.
Finally, we’ve had Nvidia’s key customers — Big Tech firms like Amazon, Meta, Alphabet‘s Google, and Microsoft — confirm that they will continue to spend massive sums on building out AI infrastructure.
The main risk would come if these tech companies suddenly rein in this spending, or if their own custom-made AI chips start to reduce reliance on Nvidia.
Prophetic prediction
Another thing that isn’t often mentioned is key-person risk in the shape of CEO Jensen Huang. Put simply, he is a rare visionary leader who would be impossible to replace, in my opinion.
After all, it’s not by accident that Nvidia has a $4.4trn valuation while many other semiconductor firms struggle to build shareholder value.
In 2017, Huang said something prophetic that is only just starting to dawn on many investors: “Software is eating the world, but AI is going to eat software.”
In other words, generative AI could disrupt many incumbent software firms, from Adobe to perhaps even Google search itself. And this is essentially the tip of the iceberg, with AI models set to improve exponentially.
Given that Nvidia’s founder has been proven right about GPUs and the direction of AI, I take what he says seriously. And he’s very clear here, stating this back in May: “As AI agents become mainstream, the demand for AI computing will accelerate.”
If this is the case, demand for Nvidia’s products should stay strong for years to come. A forward price-to-earnings ratio of 40 is hardly cheap, but I think Nvidia stock is still worth considering, especially on dips.
