Could this undervalued stock make you a millionaire someday?

Buying great companies and holding on to them for a long time is a proven strategy for making money in the stock market. This not only allows investors to take full advantage of long-term growth trends, but also helps compound their investments over time.

For example, if you have $10,000 worth of investments in stocks. nvidia (NVDA -2.68%) The current value 10 years ago was $1.9 million. This represents a massive annual return of nearly 70% over the past 10 years. During this time, Nvidia investors have benefited from growing adoption of the company’s graphics cards in the gaming, automotive, and data center markets, showing why it can be rewarding to keep a strong company around for a long time. You become a millionaire.

But it’s rare for a stock to rise 100x, turning $10,000 into nearly $2 million. But at the same time, if you have a lot of cash available after paying your bills, saving for hard times, and paying off high-interest debt, it may be wise to invest that money in undervalued stocks that stand out for the long term. Potential.

Doing so not only allows you to benefit from compound interest and long-term growth opportunities, but also creates a diverse portfolio.

Let’s take a look at why buying Nvidia right now as part of a diversified portfolio could help investors become millionaires in the long run.

Here’s why Nvidia stock is undervalued.

You may be wondering why we call Nvidia an undervalued stock after its incredible 500%+ gain since the beginning of 2023. After all, the stock is trading at 36 times sales and 74 times trailing earnings. Both figures are well above the company’s five-year average revenue multiple of 18 and trailing earnings multiple of 65.

However, Nvidia stock is undervalued relative to its expected potential growth. This is evident in the stock’s forward price-to-earnings (P/E) ratio of 36. This is lower than the five-year average forward earnings multiple of 39. Meanwhile, Nvidia’s price-to-earnings-to-growth (PEG ratio) ratio is another clear indicator that the stock is undervalued.

The PEG ratio is determined by dividing a stock’s P/E ratio by its expected annual earnings growth rate. Simply put, the PEG ratio helps investors understand how expensive a stock is relative to the growth it can deliver. A PEG ratio below 1 means the stock is undervalued. As the following chart shows, Nvidia is significantly undervalued based on its PEG ratio.

NVDA PEG Ratio Data from YCharts

Buying Nvidia at this multiple seems like a smart thing to do, considering it’s sitting on lucrative long-term growth opportunities in multiple markets. Let’s take a look at them.

These solid opportunities could help Nvidia sustain stellar growth.

Artificial intelligence (AI) is why Nvidia stock has soared so impressively over the past year or so. The good thing is that solid growth in sales and profits is supporting the company’s stock price surge.

Analysts expect Nvidia to maintain excellent growth over the next three years after finishing fiscal 2024 with revenue up 126% to $60.9 billion and adjusted earnings up 288% to $12.96 per share.

NVDA EPS estimates for current fiscal year data via YCharts

More importantly, Wall Street is optimistic about Nvidia’s long-term prospects. For example, Vijay Rakesh, an analyst at a Japanese investment bank, mizuho Nvidia expects its data center sales to increase from $47.5 billion last year to $89 billion in fiscal 2025. Rakesh estimates that by fiscal 2028, Nvidia could generate $280 billion from its data center business alone, thanks to tremendous growth opportunities in the AI ​​chip market.

This is not surprising for several reasons. First, the global AI chip market is expected to generate sales of $400 billion in 2027. advanced micro devices. Second, Nvidia leads the AI ​​chip market by a wide margin, with an estimated market share of over 95%. The good thing is that Nvidia is taking steps to ensure it remains a top player in this space.

From launching new, much more powerful AI graphics cards than existing ones at aggressive prices to reporting its foray into the custom AI chip market, it’s likely that the company will continue to dominate this market for the long term. Meanwhile, NVIDIA also plans to leverage new niche markets such as digital twins and AI personal computers (PCs).

This is a multi-billion dollar opportunity for the company. Nvidia executives, for example, expect their Omniverse enterprise software to be a $150 billion market, and they’re starting to see progress. Likewise, Nvidia’s potential revenue opportunities in the AI ​​PC market suggest that annual game sales could increase fivefold over the next four years.

All of this shows that Nvidia could remain a top growth stock over the long term, as the market is likely to reward Nvidia’s healthy growth with more profits. That’s why investors looking to build a million-dollar portfolio might want to consider buying while that portfolio is still undervalued.