A Once-in-a-Decade Investment: This AI Stock Could Soar Nearly 300% by 2030, Says a Wall Street Expert.

Nvidia (NASDAQ: NVDA) has been a cornerstone of the artificial intelligence boom since OpenAI released ChatGPT in November 2022. The stock has returned 1,340% since January 2023. Yet, it trades around 20 times forward earnings today, near the cheapest valuation in the past decade.

Nvidia is "too cheap to ignore," wrote Morningstar analyst Brian Colello on June 17, adding, "We don't foresee a slowdown in AI demand, and the company's leadership position in the AI infrastructure market remains secure. In turn, we believe the market underappreciates its prospects."

Beth Kindig, lead technology analyst at the I/O Fund, believes Nvidia will be a $20 trillion company by 2030. From its current market capitalization of $5.1 trillion, that prediction implies 292% upside over the next four-and-a-half years, which equates to an annual return of roughly 35%.

Here's what investors should know about Nvidia.

Image source: Getty Images.

Nvidia is gaining market share in AI inference

Nvidia dominates the artificial intelligence (AI) accelerator market. Its graphics processing units (GPUs) have long been the industry standard in AI training workloads, with about 90% market share. But the company is also gaining ground in AI inference workloads, where its market share increased eight percentage points to 74% over the past year, according to The Information.

Readers may find this surprising, as several of Nvidia's largest customers have developed custom AI accelerators to reduce their dependence on the company's GPUs. And it matters because AI inference will ultimately be a much larger market than AI training. In fact, inference accounts for two-thirds of AI workloads today, up from one-third in 2023.

Many analysts expected custom AI accelerators -- such as Tensor Processing Units (TPUs) designed by Alphabet's Google -- to gain substantial market share as inference workload volume surpassed training. However, that assumption has so far proven incorrect, perhaps because custom chips are less flexible (i.e., they run fewer algorithms) and lack a robust software ecosystem.

"Every engineer and every model was trained on Nvidia's ecosystem, including CUDA, the software layer between the chips and the code that contains thousands of prebuilt libraries for splitting workloads among chips, managing memory, and debugging," says Meera Pandit at J.P. Morgan. Overcoming that moat is not easy.

Furthermore, Nvidia's full-stack strategy -- meaning the company not only develops GPUs but also CPUs and networking equipment -- allows it to optimize data center performance and power efficiency in ways rival chipmakers cannot. As a result, Nvidia systems generally have the lowest total cost of ownership, according to CEO Jensen Huang. That gives the company an important competitive advantage.

Nvidia's stock looks very attractive at its current valuation

Nvidia reported impressive first-quarter financial results. Revenue increased 85% to $81.6 billion due to strong demand for data center compute and networking products. And non-GAAP (generally accepted accounting principles) net income increased 140% to $1.87 per diluted share.

Investors have good reason to think momentum will continue. The AI infrastructure market is forecast to hit $4 trillion by 2030, up from about $1 trillion today. That equates to a compound annual growth rate of 36%. And with Nvidia gaining market share in inference, the company should be able to match (or even exceed) that pace.

Indeed, Wall Street expects Nvidia's adjusted earnings to increase at 45% annually over the next three years. That makes the current valuation of 32 times earnings look cheap. Not surprisingly, most analysts who follow Nvidia think the stock is deeply undervalued. The median target price of $300 per share implies 42% upside from the current share price of $210.

I agree with Beth Kindig. Nvidia could be a $20 trillion company by 2030. And with shares trading at a very cheap valuation relative to projected earnings growth, patient investors should feel comfortable buying a small position in Nvidia today.

Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.