A risky investment in a video game chip design company has become completely worthless.
Long-term investors tend to think in terms of years and decades, not weeks or months, because history has shown that buying ownership in great companies and holding them forever is the best way to create wealth.
5 years ago, NVIDIA (NVDA -1.18%) Back then, it was a very different company than it is today. Of course, management was looking to capitalize on the same opportunities as they are today, but the results were very different. Some investors saw the stock as risky, while others saw it as an opportunity.
NVIDIA reported revenue of $2.6 billion for the second quarter of fiscal 2020 (ended July 28, 2019), down 17% year over year. The biggest drag on the results was weak demand for graphics cards used by gamers, which fell to their lowest level in 20 years due to macroeconomic headwinds. At the same time, NVIDIA’s data center division (which accounted for just 25% of revenue) fell 14% due to weaker demand from cloud infrastructure providers.
Investors who bought shares five years ago were already facing a 17% drop before the disastrous financial report. As 2019 ended, Nvidia’s stock price was roughly flat, and some investors feared the worst. But a lot can happen in five years, and those who held on have reaped big gains.
Looking ahead to 2024, Nvidia’s gaming division is recovering. another Macroeconomic headwinds led to the recession, but the data center division benefited from accelerating demand for generative artificial intelligence (AI), delivering four consecutive quarters of triple-digit growth. Additionally, NVIDIA recently announced a 10-for-1 stock split following strong stock price growth.
Data by YCharts.
If you invested $1,000 in Nvidia stock five years ago and weathered the headwinds, it would be worth nearly $35,000 today. To be clear, no one could have predicted the sudden surge in demand for AI. But it helps show the value of ignoring the market’s day-to-day and month-to-month movements, which can reap big rewards for investors in the long run.
