Nvidia‘s (NASDAQ: NVDA) stock has been soaring to unprecedented heights. The company’s shares have surged a staggering 145% since the beginning of the year, leaving the S&P 500‘s gains in the dust. This meteoric rise is not a flash in the pan. Nvidia’s stock has ascended 487% over the last three years and an awe-inspiring 2,740% in the past five years.
Despite this stratospheric growth, Nvidia’s long-term valuation remains attractive. With a price-to-earnings ratio of 28.5 times fiscal 2027 estimated earnings, the company stands out as a top-tier tech investment. However, lingering doubts persist among investors regarding whether Nvidia can sustain its winning streak. Delve deeper into Nvidia’s trajectory, and you’ll discover three compelling reasons why this chipmaker’s stock continues to shine as a premier buy-and-hold asset.
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Reasons Why Nvidia Shines Bright
1. Fueling Investor Success through Strategic Financial Moves
In a compelling show of commitment, Nvidia consistently rewards its shareholders by returning capital. The company’s buyback program was in full swing in the second quarter of fiscal year 2025, with 62.8 million shares repurchased for a hefty $7 billion, as outlined in its latest 10-Q filing with the SEC. Not one to rest on its laurels, Nvidia’s board recently greenlit an additional $50 billion for share repurchases, pushing the total authorization to a substantial $53.9 billion as of Aug. 26. This unfaltering buyback spree underscores the management’s unwavering faith in Nvidia’s long-term growth potential.
While Nvidia’s dividend program often takes a backseat due to its minuscule 0.03% yield, the company did bump up its quarterly cash dividend to $0.01 per share after a stock split earlier this year. Though seemingly modest, this dividend increase underscores Nvidia’s dedication to recognizing and rewarding steadfast shareholders.
Through these capital return initiatives, Nvidia exemplifies a staunch commitment to enhancing shareholder value. By combining bold share repurchases with consistent dividend growth, Nvidia sets itself apart from high-growth tech peers that eschew dividends in favor of plowing capital back into their operations.
2. Surfing the AI Tsunami
Nvidia stands at the forefront, perfectly positioned to ride the wave of artificial intelligence (AI) expansion. The company’s graphics processing units (GPUs) are the go-to choice for AI and machine learning applications, solidifying Nvidia’s dominance in the realm. This supremacy reflects in Nvidia’s data center revenue, which is experiencing a veritable explosion.
Market experts foresee AI revolutionizing the global economy, with projections suggesting AI could potentially double annual global economic growth rates by 2035 according to Accenture. PricewaterhouseCoopers estimates an incremental global GDP boost of up to 14%, or $15.7 trillion, by 2030 as a result of widespread AI integration.
Given Nvidia’s technological prowess in AI hardware, the company stands poised to reap the rewards of a surging demand for its specialized hardware as AI adoption gains momentum across diverse industries.
3. Accelerating Data Center Expansion
Nvidia’s CEO, Jensen Huang, envisions a landscape where millions of GPU-fueled data centers power AI interactions globally. This vision is rapidly transitioning into reality. Big-league tech firms are dramatically upping their GPU acquisitions, with Microsoft leading the charge by tripling its GPU purchases to 1.8 million units this year alone.
Joining the GPU race are other tech behemoths like Meta Platforms, which placed orders for 150,000 H100 GPUs last year and plans to acquire 350,000 H100s or their equivalents this year. The AI infrastructure push isn’t confined to Silicon Valley, as even Elon Musk’s Tesla and X are heavily investing in bolstering their AI capabilities, further stoking demand.
Industry forecasts paint an even more transformative picture ahead. Broadcom predicts million-GPU clusters by 2027, a colossal leap from today’s tens of thousands of GPU clusters. Advanced Micro Devices CEO, Lisa Su, anticipates the AI accelerator market to balloon to $400 billion by 2027, primed to translate to a data center sector worth $320 billion for Nvidia by the same year. To contextualize this surge, Nvidia is well on its way to reap between $106 billion to $121 billion in revenue from data centers in fiscal 2025 (a rough approximation).
Charting the Path Ahead
Witnessing Nvidia’s stock trajectory unfold is nothing short of spellbinding. The company’s staunch dedication to fueling investor returns via buybacks and dividends underscores robust confidence in its long-range prospects. Crucially, Nvidia’s pivotal role in the AI ascendancy cements its status as a prime candidate for continued growth.
As industries increasingly embrace AI applications, Nvidia’s hardware is poised to assume a more critical role in powering these advancements. Armed with a solid financial foundation and a sharp strategic focus, Nvidia is paving the way for a future brimming with opportunities and sustained growth in the cutthroat yet thrilling AI landscape.
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