How Nvidia Stock Finally Paid Off for Long-Time Shareholders

The story of Nvidia's (NASDAQ: NVDA) ascent to become the most valuable stock in the world has dominated headlines for the past several years. But what many investors may not realize is that the tech stock went for most of its history with much more modest returns -- and without any outside assurance that Nvidia stock would eventually prove to be the huge moneymaker that it has become today.

In this second article in the Nvidia series for the Voyager Portfolio, you'll get a closer look into the company's financial evolution over time. As you'll see, there were long periods during which steady revenue growth failed to generate visible profits, testing the discipline of even the most experienced long-term investors.

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The initial growth phase for Nvidia

Prior to the 1999 launch of its GeForce 256 graphics processing unit (GPU), Nvidia's revenue was modest. However, between the 1999 and 2003 fiscal years, sales soared by 12 times to $1.91 billion, and Nvidia posted a profit of $91 million. Those numbers continued to climb over the course of the decade, hitting a high of $4.1 billion in sales and nearly $800 million in profit in fiscal 2008.

However, Nvidia went through two painful years of retrenchment in the aftermath of the financial crisis. Sales declined even as research and development costs grew, resulting in Nvidia losing money in both 2009 and 2010. And even once the company got back on track, it wasn't until 2017 that its net income surpassed that 2008 high-water mark.

Shareholders also had to endure a period of lackluster results. Even as many other tech stocks dramatically outperformed the S&P 500, Nvidia's total return of 172% between mid-2003 and mid-2015 was only a few percentage points higher than what the index produced.

More volatility in the 2020s

Starting in 2017, Nvidia's AI-related business started to gain traction. From 2017 to 2022, revenue almost quadrupled, and net income climbed nearly sixfold. Nvidia stock soared over 1,000%, compared to the S&P 500's 132% gain.

But then, investors had to endure another tough year for the tech industry. Sales growth came to a complete halt in Nvidia's fiscal 2023 year that ended Jan. 31. Worse still, net income plunged by over 50%. Shareholders saw the stock price cut in half during the 2022 bear market.

Part of the problem was that even as recently as four years ago, many investors saw Nvidia GPUs being more valuable for the crypto industry than for artificial intelligence. When crypto winter struck in 2021 and 2022, it led Nvidia to take charges related to inventory, as demand from bitcoin mining companies and other crypto-related clients dropped sharply.

Happy days are here again -- but for how long?

Even so, it's hard to exaggerate just how incredibly impressive Nvidia's latest growth spurt has been. Consider some of these key metrics:

• Sales have risen from $27 billion in fiscal 2023 to $187 billion over the past 12 months, a compound annual growth rate of 102% over that span of two years and nine months.
• Gross margin has jumped 13 percentage points to 70%.
• Operating income has surged from just $4.2 billion in 2023 to $110 billion in the past year.
• Net income is approaching the $100 billion mark in the past year.
• Earnings per share have jumped from $0.18 to $4.06, a rise of 210% per year.

It should therefore come as little surprise that the stock has acted accordingly , with gains of 1,180% compared to a roughly 85% rise for the S&P 500.

Even so, the question is how much longer Nvidia can sustain this pace of growth. In the third and final article of this series for the Voyager Portfolio, you'll learn more about Nvidia's expectations and whether it'll be able to deliver everything shareholders want to see from the AI chipmaker.

Dan Caplinger has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.