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Since the start of the year, Nvidia (NASDAQ:NVDA) shares are up by around 162%. The stock has, by some margin, outpaced every name in the S&P 500 and the FTSE 100.
The emergence of artificial intelligence as an investing theme has been the catalyst for Nvidia’s recent run. But if I’d invested £1,000 in the company five years ago, how much would I have today?
Investment returns
Five years ago, the Nvidia share price was around $65. Taking into account the exchange rate at the time, a £1,000 investment in the stock would have bought be 20 shares.
Today, that investment would have a market value of £7,620. But the returns don’t stop there – there are also the dividends I’d have received by owning the stock for five years.
Adding in the dividends is a little complicated, since the company split its stock in 2021. But essentially, I’d have been paid around £13 in dividends.
By these calculations, the total return on a £1,000 investment in Nvidia shares five years ago is £7,633. That’s a staggering return of 50% per year compounded.
This raises an obvious question. With AI still emerging as an investing theme, could Nvidia shares offer investors similar returns for another five years?
The AI investment boom
I don’t see many obvious opportunities in AI for an investor like me at the moment. That said, if I were to look for an AI stock to buy, it would probably be Nvidia.
The reason I’m wary about AI at the moment is there seems to be a lot of money flooding into AI-related stocks right now. And that makes them expensive.
To me, AI today looks like what electric vehicles were a few years ago. Prices at the moment seem to be entirely detached from underlying business fundamentals.
Now, Nvidia is clearly different to some of the speculative companies of the EV boom. It’s a profitable business with a quality product and a real competitive advantage.
Despite this, it’s possible for such a company’s shares to be overpriced. And I think there’s a lot of speculative optimism contained in Nvidia’s share price right now.
False dawns
The Nvidia share price has increased by 472% over the last five years. But as long-term shareholders will know, it hasn’t been a steady rise.
Between November 2021 and October 2022, the stock fell from $330 to $108. That’s a 67% decline.
One reason for the big fall was a sharp decline in the price of Bitcoin. Nvidia’s chips had been used for crypto mining, but a fall in the price of the coin caused demand for GPUs to drop sharply.
I think AI has more genuine utility than cryptocurrency, so I’m not expecting volatility on the same scale. But I wouldn’t be surprised to see the company’s share price come down from its current levels.
Thre’s no doubt that Nvidia shares have been a terrific investment for long-term shareholders. And while I hope it continues for them, I don’t see this as a good time to be buying the stock.
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