key points
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Increased AI spending will likely persist until at least 2030.
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Nvidia’s stock is just pricing in another year of strong growth.
When it comes to investing in artificial intelligence (AI), some investors are probably better off not thinking too much about it. There are plenty of AI investment opportunities, ranging from energy to infrastructure to chips to AI software. Some are more subtle in terms of where it is best to invest. In the short term, it may help to focus on where money is being made right now and which companies are growing the fastest in that area. Some of these options are likely to work in the long term as well.
a great example of this NVIDIA (NASDAQ:NVDA). Nvidia is already the largest company in the world by market cap, but it still has a lot of growth potential left, and I think its stock is going to skyrocket by the end of this year. And, perhaps surprisingly to some, this growth may also be a boost to its long-term prospects.
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Nvidia’s multi-year growth will propel it further
Nvidia makes graphics processing units (GPUs), which are suitable for accelerated computing workloads such as AI. AI demand now makes up the majority of Nvidia’s business, and that’s unlikely to change going forward. Investors’ biggest concern about Nvidia is how long its growth will last. More and more investors are becoming cautious Of all the ongoing AI spendingAnd the belief is that if AI hyperscalers do not see an immediate return on investment, they will stop building out their data center footprint.
This is far from the case, as many of these businesses see this technology as an essential investment area, and it is far better to overspend than underinvest and be left behind. Nvidia estimates that annual global data center capital spending will grow from $3 trillion to $4 trillion by the end of 2030, so there’s still plenty of growth left, at least according to its projections.
However, if you look at how the stock is being valued, the market is pricing in only one year of strong growth, and then market-matching growth after that.
NVDA PE Ratio (Forward) Chart
data by YCharts.
Nvidia’s stock is priced at 36 times trailing earnings and 21 times forward earnings. This tells me that the market expects strong growth from Nvidia’s stock this year, but maybe growth in line with the market next year. with S&P 500 Trading for 20.6x forward earnings, Nvidia doesn’t have much of a premium.
However, if Nvidia’s growth rate continues to impress in 2027, the stock will readjust its price to take into account the expected growth. Right now, the market hasn’t done that, so there’s still an opportunity to get in before it does. Once the market starts hearing capex projections for 2027, it will realize that there is no upside to Nvidia’s stock at that price, And send it higher before the end of the year.
I don’t know when that will happen this year, but I believe growth is coming, so investors should position themselves accordingly.
Should you buy stock in Nvidia now?
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Keithan Drury There are positions at Nvidia. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has one Disclosure Policy.
