Prediction: Buying Nvidia Today Will Set You Up for Life

Nvidia (NASDAQ: NVDA) has already been one of the best long-term investments in history. Since 1999, shares of the chipmaker have increased in value by more than 340,000%. An original investment of just $3 would have turned into $1 million over that timeframe!

But don't think the run is over. The next few decades should see the company grow its sales immensely, leading to big gains for patient investors. Here's why.

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Nvidia sales will rise for decades to come

Nvidia's business model sits at the very center of the artificial intelligence (AI) revolution. Nearly all AI technologies require massive datasets and compute power to operate. Complex models crunch this data to provide relevant outputs for users. While some models can run locally, most popular models are run on the cloud, using distributed compute power that can scale up and down dynamically based on demand.

What technologies make cloud computing infrastructure possible? Graphics processing units, more commonly referred to as GPUs.

There is a wide variety of companies producing a wide variety of GPUs, each specialized for a different purpose. For a long time, Nvidia specialized in GPUs built for gaming environments. Next-gen gaming consoles and computers need vast amounts of graphics processing power. Specialized chips like Nvidia's allowed the industry to advance, creating better and more visually stunning games for users.

Nvidia recognized the potential of AI before many of its competitors. It invested heavily to make sure its chips and software were able to support the small but promising industry. As The New York Times summarizes:

Over more than 10 years, Nvidia has built a nearly impregnable lead in producing chips that can perform complex A.I. tasks like image, facial and speech recognition, as well as generating text for chatbots like ChatGPT. The onetime industry upstart achieved that dominance by recognizing the A.I. trend early, tailoring its chips to those tasks and then developing key pieces of software that aid in A.I. development.

That software component is perhaps Nvidia's biggest secret weapon. Over the next decade, the AI market is predicted to grow from several hundred billion dollars in value to nearly $5 trillion. Competition for GPUs will surely heat up, but Nvidia's software has created a sort of lock-in for customers.

Scores of AI applications have been built around Nvidia's hardware, and developers have been using its software for years to customize these chips to their exact specifications. Even if its hardware loses its performance edge, this software lock-in should give Nvidia heavy market share for decades to come, not to mention the reputation and capital necessary to continue improving its hardware or purchasing promising upstarts.

Image source: Getty Images.

Big gains will require patience

Trading at 25 times sales, Nvidia stock is far from cheap. But in 2021, shares also traded at roughly 25 times sales, and yet shares have increased in value by nearly 800% since then.

Now that it's a $3.3 trillion business, many argue that Nvidia will face steeper hurdles to fast growth. The law of large numbers may prove this true. After all, it's easier to double in size as a $200 billion company than as a $2 trillion one. But Nvidia has a stranglehold on its market, with some estimates pegging it with a 90% market share for AI GPUs. Meanwhile, the AI market is taking off, and Nvidia's software edge gives it a front-row seat to this growth over the long term.

High-multiple stocks like this can display extreme volatility from year to year. But if you maintain an investing horizon of a decade or more, Nvidia shares can help you turn small amounts into millions of dollars through the magic of compound interest. Just remember: The AI revolution is a multi-decade story, and Nvidia's high upfront premium may take years to fully justify.

But buying high-quality companies with durable competitive advantages operating in long-term growth markets is rarely a poor decision. Just make sure your investing horizon is long enough to fully digest Nvidia's pricey upfront valuation.

Should you invest $1,000 in Nvidia right now?

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Ryan Vanzo 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.