Is It Too Late to Buy Nvidia Stock?

Nvidia (NASDAQ: NVDA) has been one of the best-performing stocks in the market for the past five years, up 1,220% over that period. That has helped it grow to become the largest company in the world, with a market capitalization (market cap) of over $4.1 trillion.

Nvidia's rise to the mountaintop is well deserved. The company has just seen explosive growth over the past several years. Its revenue has gone from $16.7 billion in fiscal 2021 (ending January 2022) to $215.9 billion last fiscal year. That's nearly a 13 times increase in revenue in just five years. However, it is how the company has been able to evolve over the years that makes its stock a buy today.

Image source: The Motley Fool.

Nvidia has a long history of evolution

Nvidia's growth over this stretch has been fueled by the advancement of artificial intelligence (AI). When OpenAI released its ChatGPT AI chatbot in late 2022, based on the large language model (LLM) it had developed, it set off an AI race, and Nvidia became the primary dealer with its graphics processing units (GPUs). GPUs were originally created to improve graphics rendering in video games, hence the name, but their parallel processing capabilities have made them ideal for handling AI workloads.

Nvidia, meanwhile, had already established a wide moat for AI workloads even before AI went mainstream. The company developed a free software platform called CUDA two decades ago to let developers easily program its chips for different tasks, in order to expand its market beyond video games. In the process, it planted CUDA inside universities and research facilities that were doing early AI research. This led to most foundational AI code being written on its software and optimized for its chips, while training a whole generation of developers on its software.

At the same time, Nvidia saw where trends were headed and dove headfirst into the networking business. In 2014, it developed a proprietary interconnect system that was much faster than traditional methods, which essentially allows its chips to act as a single powerful unit. It then acquired Israeli networking company Mellanox in 2020, which became the building blocks for its InfiniBand, Spectrum-X Ethernet, and data processing unit (DPU) networking components. This deal helped transform Nvidia from just a chip maker into a data center platform company. Last quarter, networking was Nvidia's fastest-growing segment, with revenue surging 263% to $11 billion.

However, Nvidia hasn't stopped there, and it continues to evolve. That is the mark of a great tech company. Seeing growing competition in the inference market from custom ASICs (application-specific integrated circuits), Nvidia went out and licensed the technology from Groq for its language processing units (LPUs) and hired the company's engineers. These chips are designed specifically for inference, and the company has been able to bring them into its CUDA ecosystem.

Seeing the potential growth in data center central processing units (CPUs) with the rise of agents, the company has also developed its high-performance Vera CPUs. It is now taking all these components to offer a variety of different server racks that can be used individually to handle different tasks within an AI data center, or together for a complete turnkey solution. These five racks include ones built for compute, inference, agentic AI, storage, and networking.

So, is Nvidia's stock still a buy?

Technology is constantly evolving, and great companies need to see where it's headed and move in that direction. Few companies have been as good at this over the last two decades as Nvidia. It didn't just wake up one day and stumble into a great opportunity with AI. The seeds were planted many, many years beforehand.

Meanwhile, the company is continuing to evolve through both innovation and acquisitions. Nvidia knows it can't sit still, and the introduction of NemoClaw as a platform for agentic AI shows that the company continues to be forward-looking. Nvidia's ability to be forward-looking and evolve is also the biggest reason why the stock is still a buy today, despite it already reaching the mountaintop. The company will just look to climb a larger mountain, making it one you want to own for the long term.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.