Prediction: This Will Be Nvidia's Stock Price in 5 Years
A five-year forecast
The longer-term question is not whether AI is here to stay. It most certainly is. The more pertinent question is what the AI hardware market looks like once the initial capacity land-grab cools.
Additionally, one pressure point is that Nvidia's customers are incentivized to reduce their dependence on any single supplier. Some are already scaling internal silicon programs. Amazon, for example, recently highlighted momentum in its custom chips and said Trainium and Graviton have a combined annual revenue run rate of over $10 billion, growing at a triple-digit year-over-year rate. Programs like this could lead to Nvidia's pricing power softening over time.
Further, Amazon is explicitly focused on bringing prices down for AI chips.
"Customers are starving for better price performance," said Amazon CEO Andy Jassy in the company's fourth-quarter earnings call.
None of this is to say Nvidia will not be a strong business five years from now. But it is a high-risk stock operating in a fast-changing part of the market, and the outcome range is wide. If AI spending normalizes, if competition closes some of the performance gap, or if large customers keep scaling with in-house built alternatives, Nvidia can still grow, but at a slower rate (though probably not until Nvidia benefits from another year of blistering growth, first).
In short, I believe Nvidia's business continues to grow nicely, but its pricing power erodes over time as customers push harder on cost and alternatives mature. That combination can still deliver returns of 10% to 12% annually, but investors should not expect a repeat of the last few years.
How does that work out for the stock?
The math is simple: Starting from about $188 per share today, 10% annual compounding over five years implies a stock price of about $303. At 12%, it is about $331.
That is a solid outcome, especially given that it's from a premium valuation, as shares trade at about 47 times earnings today.
I would treat Nvidia as a business that can keep doing well, but one where the next five years are more likely to look like normal compounding than another once-in-a-cycle surge. If you own it, the key is sizing and expectations -- because the biggest risk is that the industry changes faster than the market's optimism does.
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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
Prediction: This Will Be Nvidia's Stock Price in 5 Years was originally published by The Motley Fool
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