Is Nvidia still a millionaire-maker stock?

Nvidia has created boatloads of wealth for early investors.

| More on:
a couple clink champagne glasses on board a private aircraft with gourmet food plates set in front of them. They are wearing designer clothes and looking wealthy.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Historically, few companies have demonstrated more millionaire-maker potential than Nvidia (NASDAQ: NVDA). The tech giant's shares have soared by more than 22,000% over the last decade, generating plenty of shareholder wealth in the process.

That said, with a market cap of $3 trillion, Nvidia is already the third-largest company in the world. Growing concerns about the sustainability of AI hardware spending raise questions about how much more it can realistically rise. Let's dig deeper to find out what the future may hold.

The AI hype cycle is getting long in the tooth

Since the launch of OpenAI's ChatGPT in 2022, tech giants have been scrambling to stay competitive in the market for large language models (LLMs), a type of AI algorithm that can create conversational responses based on a trained dataset. To this end, they have poured billions of dollars into purchasing Nvidia's cutting-edge graphics processing units (GPUs) to train and run these complex programs.

Created with Highcharts 11.4.3Nvidia PriceZoom1M3M6MYTD1Y5Y10YALL10 Feb 202410 Feb 2025Zoom ▾Mar '24May '24Jul '24Sep '24Nov '24Jan '25Apr '24Apr '24Jul '24Jul '24Oct '24Oct '24Jan '25Jan '25www.fool.com.au

For so-called hyperscalers like Alphabet and Amazon, this spending makes clear business sense because they can "rent out" their AI computing power to start-ups via their cloud computing platforms. However, for other major clients like Meta Platforms (which plans to spend $60 billion to $65 billion largely on AI-related capital expenditures), the potential returns for pouring so much money into Nvidia hardware look weaker.

Meta seems to be trying to stay relevant in an opportunity it has no clear way to monetise. And it might only be a matter of time before the company's shareholders push back against all this speculative spending, which could have otherwise been used for dividends or share buybacks.

Nvidia's operational momentum remains strong

While current AI spending may prove unsustainable in the long run, this challenge has yet to manifest itself in Nvidia's operational results. Third-quarter revenue jumped 94% to $35.1 billion based on massive demand for its high-end data center chips to train LLMs.

Despite selling hardware, its gross margin of almost 75% rivals that of many software companies, helping operating income roughly double to $21.9 billion in the third quarter.

Over the coming quarters, products based on Nvidia's new Blackwell GPU architecture promise to support continued growth and profitability. And so far, there is little evidence that the emergence of low-cost Chinese rival DeepSeek (which claims to have trained an industry-leading LLM on "primitive" H800 chips) is hurting demand for Nvidia's newest chips.

Some industry experts argue that DeepSeek may have inappropriately copied technology from U.S. rivals like OpenAI through distillation — a process that involves transferring knowledge from a more advanced model to a smaller one. If true, this would suggest that Nvidia's cutting-edge GPUs still help create the most advanced LLMs, even if others later copy these models using cheaper chips.

Its valuation is still attractive, but the upside looks limited

With a forward price-to-earnings multiple (P/E) of just 29, the stock is still surprisingly affordable, considering its incredible growth rate. For context, the Nasdaq-100 has an average forward P/E of 31 even though few, if any, of its members rival Nvidia's business expansion.

That said, with a market cap of $3 trillion, it is hard to see Nvidia generating multibagger returns from here, especially considering that current AI hardware spending may begin to diminish over time.

The stock's millionaire-maker days seem to be far behind it. And return-hungry investors should probably look for more under-the-radar ways to bet on the AI opportunity.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 30 April 2025

 Will Ebiefung has no position in any of the stocks mentioned. 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 to Meta Platforms 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. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool Australia has recommended Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
International Stock News

Warren Buffett's $347 billion warning to Wall Street is ringing out loud and clear. History says this happens next.

Let's take a look.

Read more »

Warren Buffet
International Stock News

Warren Buffett nearly made his biggest investment since 2022. Here's what's holding him back.

Buffett said Berkshire came close to spending $10 billion, and he'd happily spend $100 billion.

Read more »

Happy man working on his laptop.
International Stock News

Here's why Amazon is a brilliant buy now (Hint: It's not e-commerce)

Fortunately for investors, cloud computing is going through a massive boom.

Read more »

A man looking at his laptop and thinking.
International Stock News

With Warren Buffett stepping down as CEO, will Berkshire Hathaway sell Apple stock?

Or will it find something else to invest in? Let's take a look.

Read more »

Man on his laptop standing next to data centres.
International Stock News

History says now is the time to buy Nvidia stock

History doesn't normally repeat itself, but it often rhymes.

Read more »

Woman relaxing and using her Apple device
International Stock News

16 words from Warren Buffett that should have Apple stock investors excited

Let's see what Buffett had to say and what it means for investors.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
International Stock News

Prediction: Warren Buffett may be shifting out of his Berkshire Hathaway CEO role, but he's not done investing

Let's take a closer look at what may be ahead.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
International Stock News

Here's why I'm not too worried for Alphabet despite Apple's potential new AI-powered Safari search

Investors panicked when the possibility was floated, but take a step back and look at the bigger picture.

Read more »