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Shares of chipmaker Nvidia (NASDAQ: NVDA) have soared more than 2,400% in just the past five years. The stock has proven to be a growth machine due to advancements in artificial intelligence (AI) and the importance the company's chips play in next-gen technologies.
But with the company now among the most valuable in the world and amassing such incredible gains, is it too late to invest in Nvidia? Can this still be an exceptional long-term investment, one that could potentially turn a $25,000 investment into more than $1 million over the long haul?
Why investors can remain bullish on Nvidia
Investing in a stock that has already achieved such out-of-this-world returns as Nvidia will discourage many investors. After all, if it has climbed by so much so quickly, you may be wondering just how much more upside it can have.
But if you're bullish on AI, there's reason to be optimistic that Nvidia can continue to rally. And that's because it dominates the AI chip market; its share of the market is north of 70%, and many companies developing AI models need to turn to Nvidia.
Even as other tech companies are building out custom chips, demand remains robust for Nvidia. There's no better proof of that than by looking at the numbers; Nvidia's growth rate remains impressive.
While its growth rate has come down a bit, it would be hard for any company to continue tripling its sales. But averaging an annual growth rate of about 80% during a five-year period is astounding.
And what's promising is that AI demand may remain strong for years. Analysts at Grand View Research project that the AI chipset market could be worth $323 billion by 2030, estimating that it will expand at a compounded annual growth rate of 28.9% until then. Nvidia is a key benefactor of those growth opportunities, and as a result, there could still be much more room for the business to become even more valuable in the future.
Can Nvidia's stock be a 40-bagger investment?
There's no doubt Nvidia can become much more valuable in the future. But the big question is whether it can produce 40-fold returns, because that would be needed for the stock to turn a $25,000 investment into at least $1 million. To put that into perspective, consider whether you think Nvidia may one day be worth about $150 trillion -- 40 times its current market cap.
That likely won't happen anytime soon, but when you're talking about a period of 20-plus years, that includes a lot of future growth. Nvidia's stock would need to generate an average return of about 20.3% for it to grow to such a valuation. If you're looking at a period of 25 years, then the growth rate would need to be a bit lighter at 15.9%.