Here’s why the Nvidia share price can keep rising

The Nvidia share price has been a long-term winner, but has been volatile recently. Here’s why I think it’ll keep rising in the years ahead.

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I think Nvidia (NASDAQ: NVDA) is one of the best growth shares to buy and hold today. Recently, the Nvidia share price has been rather volatile. A failed acquisition, and general stock market weakness, has dragged down the shares in 2022.

I think the long-term view looks strong though. Let’s take a closer look.

A review of the results

Nvidia released its fourth-quarter earnings for the year ending 31 January (FY22) yesterday. Quarterly revenue came in at $7.6bn and above estimates for $7.4bn, which was a growth rate of 52% over the same period last year.

Earnings per share also increased to $1.32, which was above analysts’ estimates for $1.22. This meant earnings grew at an even higher rate of 70% compared to the fourth quarter in FY21.

I was impressed with these results as a current Nvidia shareholder. To my mind, it shows the business has excellent momentum heading into the coming year.

Key growth drivers

Nvidia is the leader in graphics processing unit (GPU) design. Indeed, the company designed and sold the world’s first GPU back in 1999. Today, GPUs are used in most electronic devices for parallel computing purposes. For example, modern video gaming requires high-end versions, along with cloud-based computing, and advanced artificial intelligence (AI) applications.

Looking ahead, and I think all of these sectors will grow significantly in the coming years. Within AI, Nvidia’s chips are already crucial components in self-driving cars. Also, the video game market is expected to grow to $269bn by 2025.

I view Nvidia as an excellent ‘picks and shovels’ approach to these emerging and growing markets as it supplies the vital computational power to each industry. So even if only one market grows significantly, Nvidia should benefit.

Should I buy at this Nvidia share price?

There are still risks to consider before I top up my investment. For one, Nvidia has recently failed in its bid to acquire Arm from Softbank. Arm is the British-based designer of central processing units (CPUs), and Nvidia considered it an excellent diversifier to its GPU business. As such, it’ll be a set back for the company’s plans to disrupt the CPU side of the data centre market. It will also lose the initial $2bn it paid to Softbank when the deal was initially announced. The whole process has been a bit of a blow to the company.

One final consideration is the valuation. As it stands, Nvidia shares trade on a lofty forward price-to-earnings multiple of 51. This is certainly high, and a valuation like this requires significant growth in the years ahead. Although earnings and revenue grew significantly in FY22, growth forecasts are around the 20% mark for FY23. However, I think Nvidia has a good chance of beating these forecasts.

Taking everything into account, I view Nvidia as one of the best growth stocks to buy and hold in my portfolio today. It remains the leader in the GPU market, and I think the company will beat its growth forecasts in the year ahead. As such, the share price should keep rising, so I’d add to my position today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Dan Appleby owns shares of Nvidia. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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