If you bought Nvidia (NASDAQ: NVDA) at the start of 2023, you’re very happy. The stock is up more than 1,100% since then, for a phenomenal return in a short time frame. However, after a run like that, investors would be forgiven if they thought they were too late to buy.
This thought process is called price anchoring, where your mind anchors itself to what the stock price was, making you think that you’ve missed the boat. However, the more appropriate (albeit difficult) way to think is to picture where it is going. If you can do that with Nvidia stock, it’s clear that it has a huge growth runway, and that even after its monstrous run, it still has plenty of steam to keep going.
Nvidia makes graphics processing units (GPUs), which are the semiconductors of choice for training and processing artificial intelligence (AI) models. GPUs can perform multiple calculations in parallel, making them ideal for workloads that require vast computing power, like AI. While there are a handful of competitors in this space, Nvidia is by far the preferred option and has a 90% market share in the data center realm.
Because its market share is so dominant and demand currently is greater than supply, the company’s biggest customers are working closely with it to ensure that there are enough GPUs available for them to outfit their data centers when construction is complete. So, when management makes a bold projection about the direction of the industry, investors should listen.
This year, Nvidia expects data center capital expenditures to reach $600 billion globally. By 2030, that figure is expected to reach $3 trillion to $4 trillion. That’s monstrous growth, and if that pans out, the company clearly has more room to run.
While I think huge projections like that should be met with some amount of skepticism, the reality is that the chipmaker has more information than anyone else in the industry because of its close ties with its customers. Even if the forecasts are wrong on the total amount, they are likely correct on the general direction, which makes Nvidia an intriguing stock to consider buying now, even after its strong run.
At its current price tag, the stock doesn’t look cheap. At 40 times forward earnings, it’s at the high end of the range it has traded at over the past three years. However, it’s roughly in line with its level at about this time last year, so it is staying pretty true to its historical data.
