If I had bought 1 share of Nvidia stock in 1999, this is what I would have now
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Unless you have been living under a rock for the past few years, you will know about the monster meeting Nvidia (NASDAQ: NVDA) stock. Now it's up 3,000% in just five years!
This made many fools happy and rich, as the stock was repeatedly recommended across multiple services The Motley Fool in many years.
To be honest, some have been beating the drum for a long time. CNBC's Jim Cramer even named his dog 'Nvidia' in 2017!
All about AI
The company primarily makes its money in two areas. There are games, the original focus, where their graphics processing units (GPUs) accelerate visual processing on computers. Then there are data centers (83% of revenue), where their GPUs are used for tasks such as running artificial intelligence (AI) programs.
It is clear that it has been the growth of the AI-driven data center that has put rocket boosters under the share price. Indeed, Nvidia did a 10-for-1 stock split earlier this year because it went up by $1,000 per share.
However, this wasn't the first time the chip maker had made a split since going public in 1999. There are five before that:
- 2021: 4-for-1 split
- 2007: 3-for-2 split
- 2006: 2-for-1 split
- 2001: 2-for-1 split
- 2000: 2-for-1 split
This means that one share of Nvidia that was bought in 1999 and held since then would have spawned another 480 along the way. With the share price currently at $123, those 480 shares would now be worth $59,395 on paper.
Strong demand
Yes, it's good to ask 'what if…' questions, but all that is in the past. What can Nvidia stock do from this point? However, the company now has a market cap of $3trn, so it is highly unlikely that it will generate the same returns as in previous years.
However I would be surprised if the next few parts aren't very strong. That's just what its biggest customers were saying in the latest quarter.
For example, Meta CEO Mark Zuckerberg said recently that the next-generation AI model will need to reach about 10 times the amount of computing power. He added that “future models will continue to grow beyond that.”
Needless to say, that's bullish news for Nvidia going forward.
FOMO
However, long term, I don't think the picture is that clear. Demand will slow at some point and supply will catch up. That means Nvidia's fat profit margin — a staggering 57% in Q1 — looks unsustainable.
When Alphabets CEO Sundar Pichai, when asked about the billions Google is spending on AI, said “the risk of underinvestment is much greater than the risk of overinvestment for us here, even in cases where it turns out that we are overinvesting..”
This exorbitant spending is reminiscent of the 'build it or miss it' phase of the early Internet. In other words, FOMO (fear of missing out). But history says that this use will not last forever.
To me, Nvidia is clearly an amazing firm with a visionary leader, and I think it will eventually build on its leadership in GPUs. But that doesn't make it a good investment today in the $3trn-market-cap.
I sold my shares this year. That may be premature in the short term but the right move in the long run.
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