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Over the long run, Wall Street is a bona fide wealth-creating machine. Although gold, oil, housing, and Treasury bonds have increased in value over multiple decades, no asset class has come close to replicating the average annual returns delivered by stocks over the past century.

For example, including dividends paid, the benchmark S&P 500 has delivered just a hair north of a 10% annualized return since its official inception as a 500-company index in 1957. That’s a hearty return that can double investors’ money about every seven years.

But on an aggregate growth basis, the S&P 500 doesn’t hold a candle to what semiconductor stock Nvidia (NASDAQ: NVDA) has done for investors since becoming a publicly traded company in 1999.

If you purchased $1,000 of Nvidia stock at its IPO price, you’re now rich

Not too long before the dot-com bubble burst in 2000, Nvidia made its grand entrance as a publicly traded company. Its initial public offering (IPO) occurred on Jan. 22, 1999, with shares being sold at $12. Of course, a lot has changed since then.

If investors had the wherewithal to purchase $1,000 worth of Nvidia stock for its IPO, they would have received 83 shares, not including commission costs and fractional shares. In the quarter of a century since going public, this Wall Street darling has split its stock on five separate occasions. The figure in parenthesis behind each split denotes what the original 83-share position would have grown into:

• June 27, 2000: 2-for-1 stock split (166 shares)

• Sept. 12, 2001: 2-for-1 stock split (332 shares)

• April 7, 2006: 2-for-1 stock split (664 shares)

• Sept. 11, 2007: 3-for-2 stock split (996 shares)

• July 20, 2021: 4-for-1 stock split (3,984 shares)

IPO-day investors have seen their share count in Nvidia grow by a factor of 48. At the same time, the IPO offering price has been reduced to a split-adjusted $0.25 per share.

Based on Nvidia’s closing price of $878.36 on March 15, 2024, a 3,984-share position would equate to $3,499,386. For those of you keeping score at home, Nvidia has produced a 351,244% gain since its IPO, which compares to just a 318% return for the benchmark S&P 500 over the same period. Keep in mind that I’m not including the additional returns from Nvidia’s nominal dividend in this 351,244% figure, either.

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Here’s what’s made Nvidia the stock of the century (thus far)

Throughout its 25 years as a public company, Nvidia has had moments where it’s thrived. For quite some time, the company’s graphics processing units (GPUs) used for gaming on personal computers were its calling-card to success. The company also gained momentum from 2016 through 2018 as cryptocurrency prices soared. Cryptocurrency miners gobbled up the company’s high-powered GPUs.

But there’s little question that Nvidia’s role as the infrastructure backbone of the artificial intelligence (AI) movement has done most of the heavy lifting.

Though estimates vary wildly, the analysts at PwC believe AI can add $15.7 trillion to global gross domestic product by 2030. Utilizing software and systems to handle tasks that would normally be assigned to humans, and seeing these systems evolve over time and become smarter, is what gives AI application across virtually every sector and industry.

Nvidia’s A100 and H100 GPUs are nothing short of the standard in AI-accelerated data centers. With demand easily outweighing the supply of these high-powered chips, Nvidia has enjoyed otherworldly pricing power, which more than double its sales in fiscal 2024 (ended in late January).

Additionally, Nvidia’s ramp of A100 and H100 chips looks to be in its early innings. Its four largest customers — and fellow “Magnificent Seven” members — Microsoft, Meta Platforms, Amazon, and Alphabet, have been aggressively gobbling up supply for their own AI-fueled ambitions.

However, sustaining this success in the years to come could prove challenging.

Nvidia’s epic outperformance may come to a screeching halt

For the past year, Nvidia has blown the doors off of Wall Street’s revenue and profit forecasts. But don’t expect this to continue for much longer.

One problem Nvidia may be contending with in the second-half of 2024, if not well beyond, is margin contraction. The scarcity of the company’s AI-GPUs is what’s lifted prices for these chips into the stratosphere. With supply chain issues beginning to ease and external competitors entering the arena, AI-focused GPUs will be far less scarce in the second-half of 2024 than they are now. That’s a recipe for weaker pricing power and lower margins for Nvidia.

What’s arguably an even bigger concern for Nvidia than the external competitors that’ll be challenging its AI-accelerated data center dominance is that its aforementioned top four customers, which account for 40% of its sales, are developing AI-GPUs of their own. Regardless of whether these internally developed GPUs are to complement Nvidia’s chips or replace them, we’re very likely witnessing a peak of orders that will taper into subsequent years.

Nvidia is also getting no help from U.S. regulators. Following an initial round of export restrictions to China for its top-notch A100 and H100 GPUs, the company developed the toned-down A800 and H800 chips. Late last year, U.S. regulators axed the shipment of these GPUs to China as well. Nvidia is missing out on billions of dollars in potential quarterly sales because of these restrictions.

The final damning factor for Nvidia, aside from its lofty valuation, is that every next-big-thing investment trend over the past 30 years has navigated its way through an early stage bubble, without exception. Investors have a terrible habit of overestimating the adoption/demand of new innovations or trends, leading to bubbles. It’s highly unlikely that Nvidia/AI is going to be the exception to this unwritten rule.

Although Nvidia has made patient investors richer, locking in some of those gains would likely be a wise decision.

Should you invest $1,000 in Nvidia right now?

Before you buy stock in Nvidia, consider this:

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Sean Williams has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

If You Invested $1,000 in Artificial Intelligence (AI) Stock Nvidia for Its IPO in 1999, Here’s the Jaw-Dropping Amount of Money You’d Have Now was originally published by The Motley Fool