Up a whopping 1,720% over the past five years, semiconductor company Nvidia (NASDAQ: NVDA) has produced life-changing returns for investors. But it’s not a new act. The stock is up an even more impressive 87,000% over its lifetime.
A true millionaire maker.
Today, at a humungous $1.5 trillion market cap, it probably won’t continue multiplying in size. After all, America’s entire annual economic output is worth $28 trillion. But that doesn’t mean Nvidia still can’t help you retire a millionaire.
Investors can confidently buy and hold Nvidia in a diversified portfolio and enjoy the compounding returns that are likely on the way.
I’ll discuss how Nvidia can still change your financial fortunes below.
AI is here to stay, but keep expectations realistic
Nvidia built a tremendous company by specializing in dedicated graphics processing units (GPUs). These are computer chips designed for intense workloads like high-end gaming. As technology advanced over time and demanded higher-performing hardware, Nvidia’s chips began spreading to new end markets like cryptocurrency mining, autonomous driving, and, yes, artificial intelligence (AI).
The company has become the dominant AI chip supplier in short order. Nvidia built a software ecosystem that made it easy for customers to implement and develop AI models on Nvidia chips. Today, Nvidia has an estimated 90% market share, and it’s believed the AI chip market could grow to sizes ranging from $120 billion to $400 billion by 2027 (and could keep growing beyond that).
Regardless of where the numbers ultimately land, AI is clearly a tremendous opportunity. As the dominant chip company, Nvidia could technically capture much of that growth, but investors may want to pump the brakes. There is no doubt Nvidia will remain a significant factor in AI, but competition will aggressively chase it. Additionally, some more prominent AI chip users could design in-house hardware; some are already working on it.
The bottom line is that Nvidia will continue growing, but it’s unlikely that Nvidia will maintain its recent pace.
A cash cow is born
The good news is that’s OK. Nvidia doesn’t need to become some $10 trillion company to make you extremely wealthy over the long term. It’s just going to happen differently than investors are used to. You see, Nvidia is already highly profitable, and its tremendous revenue growth is making it a cash cow.
Nvidia has converted 39% of its revenue to free cash flow over the past four quarters, totaling $17.5 billion. Analysts currently estimate $109 billion for the fiscal year ending January 2026. Cash flow margins could improve as Nvidia grows, but that’s still about $40 billion in cash flow even if they don’t.
Putting that cash to work will make millionaires
Where am I going with this? There’s a good chance that Nvidia’s massive cash flow and what it does with that money will drive investment returns over the next decade and beyond. Shareholders could see Nvidia’s profits trickle down to them as dividends and share repurchases. The company already pays a dividend, though its yield is hilariously low at 0.03% because of how much shares have risen.
Shareholders will be too giddy to laugh if management raises the dividend faster. The dividend only costs Nvidia about $394 million, a rounding error to the company today. I’m more optimistic that Nvidia will turn into a cannibal, repurchasing staggeringly large amounts of stock to boost its earnings-per-share (EPS) as revenue growth eventually slows.
You can see that management recently began pressing this button, so investors could be at the beginning of a long stretch where repurchases lower the share count, making yours worth more.
Nvidia is too big to be the lottery ticket it once was. But is Nvidia capable of helping you retire a millionaire? Absolutely.
Should you invest $1,000 in Nvidia right now?
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Could Nvidia Stock Help You Retire a Millionaire? was originally published by The Motley Fool