The Nvidia (NASDAQ: NVIDIA) share price has been creeping up in recent months. In fact, over the past 30 days it’s climbed over 13%. Over six-month and one-year time periods, the situation is even better, with the shares climbing 27% and 113%, respectively. Much of this positive sentiment has come after the firm announced a potential partnership with chip manufacturer Intel. With the shares seemingly on the rise off the back of this news, should I be looking to add a position to my portfolio at the current Nvidia share price? Let’s investigate.
First, let’s take a look at what it actually does. It’s the world’s leading designer of graphics processing units (GPUs). While this might sound complicated, GPUs are essentially devices that help handle intense graphics and rendering. They therefore have essential uses in sectors like gaming, systems, artificial intelligence, even the automotive industry.
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Even more exciting, Nvidia broke these sectors down in a recent investors day presentation, in which it estimated its total addressable market to be north of $1trn. This came from $100bn for gaming, $300bn for chips and systems, $150bn for AI, $150bn for Omniverse software, and $200bn within automotive. Nvidia having broad access to all of these high growth markets really does excite me and gives me confidence in the company’s growth story.
In addition to this, the 2022 Q4 results were also great. It delivered record quarterly revenues of $7.6bn, up 53% from the same period in the previous year. The 2022 financial year’s revenue also rose an astounding 61% compared to FY21. And earnings per share climbed over 103% year-on-year, reaching $1.18. If the firm can keep delivering results such as these, I expect the share price to keep climbing.
Nvidia share price risks
The primary risk I see for the share price is how rising interest rates could affect high-growth stocks. Inflation has been soaring across the globe and to combat this, central banks are hiking interest rates. When rates go up, people pull their money out of higher-risk assets and put it into safer ones. High growth stocks like Nvidia are usually hit hardest as a consequence.
In addition to this, it currently trades on a price-to-earnings (P/E) ratio of 71. Although the tech industry operates with notoriously high multiples, this is light years above anything that I would consider good value. That being said, we have seen stocks like Tesla trade on monster P/E ratios and still deliver high growth.
Overall, I think the outlook for Nvidia is bright. It has delivered stellar results and has a stake in a some of the fastest growing markets on the planet. Perhaps if I was less risk averse this alone would be enough for me to add the shares to my portfolio. However, the sky-high multiple and rising interest rate situations do worry me. As such, I’ll be keeping the stock on my watchlist for the time being.