Nvidia‘s (NASDAQ: NVDA) fortunes have been lifted remarkably by the artificial intelligence (AI) revolution. Over the past three years, during a period when data center spending among hyperscalers really kicked into high gear, the company’s shares have rocketed 410% higher (as of Oct. 23). Since it produces the most advanced and most popular graphics processing units for AI data centers, it has benefited like no other business has.
This AI stock is trading at around $211 right now. If you buy $10,000 worth of Nvidia shares today, I predict that it will grow remarkably by 2029 — if the AI spending boom holds up.
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The company must deliver strong earnings growth
The consensus estimate of the sell-side analyst community is that Nvidia’s earnings per share will increase at a compound annual rate of 65% from fiscal 2026 through fiscal 2029. This doesn’t look like a stretch. Between fiscal 2023 and fiscal 2026, that profitability metric climbed at a yearly clip of 204%. That was certainly the most powerful tailwind driving the stock higher.
If Wall Street’s forecast proves correct, then Nvidia’s share price should mimic this bottom-line gain. That would turn a $10,000 investment in the chipmaker made today into a position worth $45,000 in three years. A 350% return in 36 months is impossible to complain about.
This premise assumes that the company’s valuation multiple doesn’t change. Nvidia stock currently trades at a price-to-earnings ratio of 26.7.
This bull case is definitely within the realm of possibility. Indeed, while it may sound hard to believe, if the stock does rise at 65% annually between now and late 2029, it would result in a slightly lower rate of return than the business posted over the prior three years. However, for that to occur, Nvidia will need the AI industry’s momentum to continue.
It all comes down to AI-related spending. While Nvidia can still prosper even if it slows down slightly, it can’t decelerate too much. According to a forecast from investment firm Vanguard (itself a giant with $13 trillion in assets under management), the five big hyperscalers, which represent a significant customer cohort for Nvidia, will spend more than $1 trillion on AI capex each year from 2027 through 2030.
The AI spending frenzy may not last
The bear case also shouldn’t be ignored, though. The amount of capital flowing through the AI industry, coupled with the speed of model development, is unprecedented. While AI looks like it could be a revolutionary technology, no one has a clue how its adoption will play out, or to what degree those investments will pay off. These innovative capabilities don’t mean that the infrastructure providers — or the hardware giants that support them — will continue to be winners.
If at some point in the coming years, AI infrastructure spending slows down dramatically faster than the market currently expects, Nvidia could be in trouble. Under that scenario, demand for its GPUs would fall, taking the wind out of its jaw-dropping revenues and profits. This could happen because of softening end-user demand for AI models. There could also be cracks forming in the complex web of financing between the key players in the space.
Additionally, emerging competitive threats to Nvidia’s dominant position in the AI accelerator market coming from peers are something investors need to keep tabs on. The chips being developed by both its longtime peers and some of its largest hyperscaler customers could materially eat away at Nvidia’s share of the data center chip market.
Under that downbeat scenario, it’s possible that its EPS will only grow 15% or 20% per year. And the earnings multiple the stock trades at could contract as growth investors head for the exits.
If negative sentiment hits Nvidia, it will surely spread through the market and impact other AI stocks. Because of how concentrated the value of the stock market is right now in companies connected to the AI trend, such a retreat could crush equities broadly. And that would resemble a bubble bursting.
Given how much momentum the AI ecosystem seems to have, investors may struggle to envision the bear case becoming a reality. Pay close attention to hyperscalers’ capital expenditures. Revenue trends at AI labs Anthropic and OpenAI are also worth watching. Weakness there might indicate that things are cooling down.
Between the bear and bull cases, I still lean toward the former. However, I accept that uncertainty is extremely high.
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Neil Patel 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.
