3 Compelling Reasons Nvidia Stock Remains a Top Pick

Nvidia's (NASDAQ: NVDA) stock has been on a tear. The company's shares have surged 145% year to date, dwarfing the S&P 500's gains. This otherworldly performance for a megacap stock extends beyond the short term. Nvidia's shares have skyrocketed 487% over the past three years and an astounding 2,740% over the past five years.

Despite this astronomical rise, Nvidia's long-term valuation remains attractive. The stock trades at 28.5 times fiscal 2027 projected earnings, which isn't outlandish for a top-tier tech company. Still, investors have openly wondered whether Nvidia's outperformance can continue. Here are three compelling reasons the chipmaker's shares remain a top buy-and-hold candidate.

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Reason No. 1: Rewarding shareholders through buybacks and dividends

Nvidia has demonstrated a strong commitment to returning capital to shareholders. The company repurchased 62.8 million shares for $7 billion in the second quarter of fiscal year 2025 alone, according to its latest 10-Q filing with the Securities and Exchange Commission.

Nvidia's board recently approved an additional $50 billion for share repurchases, bringing the total available to $53.9 billion as of Aug. 26. This substantial buyback authorization underscores management's confidence in Nvidia's long-term prospects.

While its dividend program is usually an afterthought for most shareholders because of its 0.03% minuscule yield, the company did boost its quarterly cash dividend to $0.01 per share on a post-stock-split basis earlier this year. This increase, though small, underscores management's commitment to rewarding loyal shareholders.

These capital return initiatives demonstrate Nvidia's commitment to creating shareholder value. The combination of aggressive share repurchases and consistent dividend growth provides investors with multiple avenues for returns, setting Nvidia apart from many high-growth tech companies that forgo dividends entirely in favor of reinvesting in the business.

Reason No. 2: Riding the AI wave

Nvidia is perfectly positioned to capitalize on the artificial intelligence (AI) boom. The company's graphics processing units (GPUs) are the gold standard for AI and machine learning applications. This dominance is reflected in Nvidia's data center revenue, which is experiencing explosive growth.

Industry experts predict that AI will have a transformative impact on the global economy. Consulting firm Accenture forecasts that AI could double annual global economic growth rates by 2035. PricewaterhouseCoopers estimates that global GDP may increase by up to 14%, or $15.7 trillion, by 2030 thanks to AI adoption.

Nvidia's technological leadership in AI hardware puts it at the forefront of this revolution. The company's GPUs are essential for training large language models and powering AI-driven applications across industries. As AI adoption accelerates, Nvidia stands to benefit from increased demand for its specialized hardware.

Reason No. 3: Increasing data center growth

Nvidia CEO Jensen Huang envisions a future where "millions of GPU data centers" power AI interactions across the internet. This vision is rapidly becoming a reality. Major tech companies are dramatically increasing their GPU purchases, with Microsoft planning to triple its GPU supply to 1.8 million units this year.

Other tech giants are following suit. Meta Platforms has announced orders for 150,000 H100 GPUs last year and 350,000 H100s or equivalents this year. Elon Musk's Tesla and X are also investing heavily in AI infrastructure, further ramping up demand.

Industry analysts project even more dramatic growth. Broadcom expects million-GPU clusters by 2027, compared with clusters with tens of thousands of GPUs today. Advanced Micro Devices CEO Lisa Su predicts the AI accelerator market will reach $400 billion by 2027.

With Nvidia's dominant market share, this could translate to a data center segment worth $320 billion for the company by 2027. To put this into context, Nvidia is on track to generate between $106 billion to $121 billion (a rough estimate) in data center revenue in fiscal 2025.

The road ahead

Nvidia's stock performance has been nothing short of extraordinary. The company's commitment to shareholder returns through buybacks and dividends demonstrates confidence in its long-term prospects. Most importantly, Nvidia's central role in the AI revolution positions it for continued growth.

While past performance doesn't guarantee future results, Nvidia's technological leadership and strategic positioning make it a compelling choice for investors looking to capitalize on the AI megatrend. The company's ability to innovate and adapt to rapidly changing market demands will be crucial as it navigates the exciting but competitive landscape of AI.

As AI applications become more prevalent across industries, Nvidia's hardware is likely to play an increasingly vital role in powering these technologies. The company's strong financial position and focused strategy provide a solid foundation for future growth.

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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. George Budwell has positions in Microsoft and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.