Is Nvidia Still a Millionaire-Maker Stock?

Over the last five years, Nvidia (NASDAQ: NVDA) has been the quintessential millionaire-maker stock -- returning roughly 950% compared to the S&P 500's relatively modest gain of 74%. The company's powerful graphics processing units (GPUs) are the workhorses of the generative artificial intelligence (AI) industry. And its advantages in scale and technology have helped it stay ahead of the competition.

That said, Nvidia's stock price growth is beginning to stall as investors balk at its huge size and pivot to other sides of the AI infrastructure opportunity. Let's dig deeper to see if the company has what it takes to break out of its slump and continue generating market-beating returns.

Business is still booming

The generative AI megatrend shows no signs of slowing anytime soon. In fact, it may be heating up. Analysts at Evercore and Bank of America expect big tech's AI-related capital spending to exceed $1 trillion in 2027 -- up from around $800 billion to $900 billion this year. Most of this money is going to advanced hardware needed to run massive data centers.

Nvidia's chips remain highly relevant, which is reflected in the company's first-quarter earnings results. Revenue jumped 85% year over year to $81.6 billion, which is an incredible number for a business that is already so large. And as in previous quarters, overall growth was driven by growth in the company's data center segment, which recently announced exciting new offerings such as the Vera Rubin Platform, designed to facilitate the rise of agentic AI by removing processing bottlenecks.

Many industry watchers believe agentic AI represents the next phase of the technology. Unlike earlier AI systems, it is designed to independently plan and make decisions with limited human oversight, making it ideal for helping automate a variety of industries. And if the technology takes off as expected, it could help Nvidia maintain its elevated growth rate.

Management is returning value to shareholders

Nvidia's success isn't limited to its top line. The company's technological edge gives it strong pricing power and operating leverage. Net income soared 211% year over year to $58.3 billion, and management is getting increasingly serious about returning much of it directly to shareholders.

As of May, Nvidia has increased its cash dividend from just $0.01 per share to $0.25 per share (a yield of around 0.5%). More importantly, management authorized an additional $80 billion in stock repurchases on top of the $38.5 billion remaining from its previous program.

Image source: Getty Images.

Investors tend to love buybacks because they reduce the number of a company's shares outstanding, giving every investor a higher claim on the company's future earnings and cash flow. They tend to encourage stock price growth and, unlike dividends, they aren't taxed as regular income, which can make a tremendous difference over the long term.

Nvidia's huge push toward buybacks marks a sharp divergence from other technology giants like Amazon, Microsoft, and Micron Technology, which are instead plowing cash back into AI-related capital expenditures like data centers or expanded production capacity. Nvidia's strategy is arguably less risky because it relies on internally generated cash instead of debt or dilution like some of the alternatives in the tech industry.

Is Nvidia a millionaire-maker stock?

With a market cap of $4.72 trillion, Nvidia isn't a millionaire-maker stock anymore because, even in the best-case scenario, rapid multibagger growth seems unrealistic from such a high level. The company's sky-high margins will also eventually come down as customers substitute in-house solutions for Nvidia products and rivals catch up technologically.

That said, with a forward price-to-earnings (P/E) multiple of just 22.7, most of these challenges are already priced into Nvidia's valuation. And management's aggressive buyback policy will benefit shareholders over the long haul. Investors should view Nvidia stock as a value-oriented pick in the AI industry instead of a big growth opportunity.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Micron Technology, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.