It’s no secret that the skyrocketing Nvidia (NASDAQ:NVDA) share price has delivered some jaw-dropping returns over the last couple of years. With artificial intelligence (AI) infrastructure spending going through the roof, the chip designer’s seen its market-cap explode by roughly 1,250% since September 2022.
To put this into perspective, a single lump sum investment of £5,000 three years ago is now worth £67,500. And with big data centres still investing heavily into Nvidia GPUs to power AI models, this upward trajectory might not have reached its peak just yet.
So for investors who are late to the game, how much money could a £5,000 investment today realistically make by this time next year?
What the experts say
Despite the staggering share price gains Nvidia’s delivered so far, most institutional investors remain bullish, with 60 out of 66 recommending the stock as either a Buy or Outperform. Among these experts, the analyst team at Morgan Stanley seem to be among the most optimistic, placing a share price target of $240 per share.
Compared to where the Nvidia share price is today, Morgan Stanley’s forecast calls for another 35.5% upside potential. And if this turns out to be accurate, it would be enough to transform a £5,000 investment today into £6,773.
That certainly pales in comparison to the last three years. But with a market-cap of $4.3trn, Nvidia’s days of quadruple-digit growth are likely behind it. Nonetheless, 35.5% is still significant. And not entirely unreasonable given the group’s recently resumed sales to China, dominance in the GPU market, and expansion into autonomous vehicles and edge computing solutions.
Pairing all this with $56.8bn of cash & equivalents to fund future projects and only $8.5bn of debts & equivalents to worry about, Nvidia’s financial health appears to be in tip-top shape, primed to continue innovating and delivering growth.
Taking a step back
There’s no denying that Nvidia’s a phenomenal business with unique technology powering the AI revolution. However, that doesn’t mean it’s a guaranteed winner.
While easy to forget during the good times, semiconductors are in a highly cyclical industry. AI investments may still be ramping up, but the promised efficiency gains have yet to materialise as expected. And should its key hyperscaler customers like Microsoft and Alphabet decide to slow their current rampant spending, it could create some very tough comparisons.
At the same time, there’s also the growing threat of competition to worry about. Established rival firms and emerging AI chip start-ups are all seeking to take market share away from Nvidia with cheaper and lower-energy-consuming alternatives. And given time, these could chip away at Nvidia’s currently impressive pricing power, putting pressure on profit margins.
The bottom line
As things stand, the Nvidia share price appears to be on an upward trajectory, backed by solid fundamentals. But at the same time, that could quickly change once the semiconductor industry inevitably enters into a new downcycle.
This is a risk investors will have to carefully consider when evaluating this business as a potential investment. Nevertheless, personally, I think Nvidia shares are worth investigating further.
