Chip and data center specialist Nvidia (NASDAQ: NVDA) has emerged as the king of the artificial intelligence (AI) realm. Quarter after quarter, the company continues to defy expectations, set revenue and profit records and provide investors with a laundry list of news so good it’s hard to keep track of it all.
If you’ve held Nvidia stock at any point in the past two years, congratulations. You’ve probably made a lot of money.
But as I often express in my pieces, investors need to think long term. Can Nvidia’s rocket ship keep climbing higher?
Below I will outline catalysts and risk factors facing Nvidia. Additionally, I’ll detail how I think these points could affect the stock and assess how Nvidia stock may hold up over the next five years.
The next few years look good, but…
One of Nvidia’s best-selling products at the moment is its H100 graphics processor (GPU). Meta platforms CEO Mark Zuckerberg and Tesla CEO Elon Musk has both specifically mentioned the importance of the H100 technology to their respective companies’ generative AI development.
Still, despite the relentless demand for the H100, Nvidia is already on the verge of a successor chipset. The company’s new Blackwell GPUs are due to launch later this year, and both Wall Street and Nvidia’s own management are predicting billions of additional dollars in sales by the end of the year.
In addition, large expenditures for capital expenditure (capex) continued from e.g. Meta, Tesla, Microsoft, Amazonand Alphabet should serve as a good tailwind for Nvidia’s computing and networking business.
With all that in mind, Nvidia stock could be poised to see further gains over the next few years as Blackwell really hits his stride.
The long-term picture is unclear
An important detail to highlight regarding more investment spending from major technologies is that not all of this will be allocated to Nvidia’s products. Each of the “Magnificent Seven” members highlighted above are instead working on their own custom chip designs. In other words, Nvidia’s own customers are looking to compete with the company and move away from a pervasive over-reliance on its IT infrastructure.
Such a dynamic is likely to be a headwind for Nvidia in terms of its pricing. I suspect that lower prices for Nvidia’s GPUs will start to eat away at its revenue growth and gross profit. As revenue growth begins to normalize and margins begin to shrink, Nvidia’s profitability profile will tighten.
As a result, increasing competition could be the catalyst that ultimately leads to a plateau across Nvidia’s entire business. For these reasons, I think the stock has a good chance of selling off in the long run.
Bottom line
I want to make one thing absolutely clear: Nvidia stock likely has a solid runway ahead. But as I’ve expressed before, I think timing will become a more important factor when evaluating whether to buy or sell Nvidia stock.
In other words, I don’t think Nvidia stock will gain another 2,800% over the next five years. Although the stock will rise at times, it is highly unlikely that stocks will rise in a straight line and experience minimal sell-offs.
I honestly think this dynamic has been at the center of Nvidia’s sales activity from several high-profile billionaires of late.
Will Blackwell and whatever else Nvidia releases over the next five years be successful products? Probably. But will they be so successful that Nvidia remains the king of the AI ​​realm, with the rest of the tech world lucky to just get their hands on the company’s products? In my opinion, I don’t think that will be the case.
For these reasons, I believe Nvidia’s valuation will normalize over the next five years, and the stock may well underperform its peers and the technology sector as a whole. I think there are more compelling opportunities in the chip industry and the AI ​​space more broadly. I would think long and hard before doubling down on a position in Nvidia over the next several years.
Don’t miss this second chance for a potentially lucrative opportunity
Have you ever felt like you missed the boat on buying the most successful stocks? Then you want to hear this.
On rare occasions, our expert team of analysts issue a “Double Down” stock recommendation to companies that they believe are emerging. If you’re worried that you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Amazon: if you invested $1,000 when we doubled in 2010, you would have $21,266!*
-
Apple: if you invested $1,000 when we doubled in 2008, you would have $43,047!*
-
Netflix: if you invested $1,000 when we doubled in 2004, you would have $389,794!*
Right now we are issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
See 3 “Double Down” stocks »
*Stock Advisor will return from October 7, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister of Meta Platform CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco holds positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a non-disclosure policy.
Where will artificial intelligence (AI) leader Nvidia be in 5 years? was originally published by The Motley Fool