This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
When stocks skyrocket, investors cheer, of course. But when a stock registers gains in the quadruple digits or more, investors often worry that the growth opportunity may be reaching its final days. After climbing so much, the stock might have reached its maximum. In some cases, this is true.
But this isn't the case 100% of the time, especially when the company in question is involved in a high-growth business and continues to wow investors with every earnings report. One particular industry that's helping such success stories come to fruition these days is artificial intelligence (AI). The technology, which has the potential to transform our daily lives and the way business is done, is seen as the next big thing -- and an area that could deliver significant returns for shareholders and the companies themselves.
As part of this AI boom, one stock has climbed a mind-boggling 26,510%. And here's the part that may surprise you: After such a tremendous gain, this AI player still is a buy. Let's find out more.
Playing a critical role in AI
The company that's delivered such a massive gain is one that plays a critical role in the development and use of AI, and this tech giant continues to see its revenue climb in the double digits to record levels. I'm talking about AI chip leader Nvidia (NASDAQ: NVDA). The stock has soared 26,510% over the past 10 years as the company transitioned from primarily serving the video game market with its chips, known as graphics processing units (GPUs), to powering vital AI tasks, such as the training and inferencing of models.
How and why is it possible for Nvidia to continue to advance after its enormous increase over the past decade? For a few reasons. First, it's important to note that the general AI market forecast supports the idea of more gains ahead. The market is set to expand at a double-digit compound annual growth rate to reach more than $2 trillion in the coming years.
Clearly, a leader such as Nvidia will benefit from this. We're in the early stages of the AI story, with companies still building out infrastructure and only starting to apply AI to their needs through the use of AI agents. And farther down the road, humanoid robots may drive another phase of AI growth. Nvidia predicts robots will become a $10 trillion industry.
So, there's a lot ahead, and here's where we come to another reason why Nvidia will soar: Nvidia is playing a principal role in each of these growth stages, thanks to its broad AI platform. The company hasn't just stuck to chips but has built an entire portfolio of AI products and services to help customers build out platforms and apply AI to their businesses. Nvidia has even designed platforms for the use of specific industries, such as automotive and healthcare.
The plan to stay ahead
Nvidia has also wisely focused on maintaining its leadership in AI, and it's done this by doubling down on research and development to stay ahead. The company aims to update its GPUs on an annual basis and has offered investors a glimpse of its planned launches through 2028. This should make it tough for competitors to jump ahead.
And all of this is anchored by a solid earnings track record, with revenue and profits climbing in the double and triple digits quarter after quarter and a cash level of $53 billion to support development plans.
So, we've discussed the why part of our question. Now, let's move on to how Nvidia can continue to climb, and for this, let's consider valuation.
Despite Nvidia's meteoric rise, the stock today trades for only 33 times forward earnings estimates, a very reasonable level for a company with such strong prospects. And this is down from 50 times expected earnings earlier this year. Meanwhile, Nvidia is neck and neck with Microsoft when it comes to market cap, both at about $3.5 trillion. Considering Nvidia's growth has topped that of Microsoft in recent quarters, this strength could help revenue and eventually market value march higher.
All of this answers the question of how Nvidia may continue to advance: Valuation is reasonable enough to allow the stock room to run, and the company has what it takes to drive market value higher. This means Nvidia, even after its explosive gains in recent years, is still a buy -- and one that could go on to deliver big well into the future as part of this AI boom.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
