Over the past year, the Nvidia (NASDAQ:NVDA) share price has risen by 103%. Around 40% of these gains have come over just the past month, thanks to positive earnings and more chatter about the future uses of artificial intelligence (AI). Yet with such a large move already in Nvidia shares, is this the best AI stock to buy or has the ship sailed?
To understand why the stock has been so hot over the past year, we need to better grasp what the company does. The business manufactures and designs a wide variety of computer hardware and software. This includes graphic processing units (GPUs), which are at the core of most computer-related activities.
Importantly, it has a large presence in helping further the march of AI. In fact, the company says it’s now “a world leader in artificial intelligence computing”.
Recent results help
The Q1 results from last week helped spark a huge rally in the share price. Revenue for the quarter was up 19% from Q4, with net income jumping 44%. A large part of this beat due to higher chip demand linked to the aforementioned AI. As a result, the stock jumped 26% in after-hours trading when the results came out.
What makes this move even more impressive is that the market cap of the business was already in the hundreds of billions of dollars. So to see a jump of this size means that over a hundred billion dollars worth of value was added in under a day!
Concerns from here
It’s not all perfect though. The man reason why investors might not view this as the best AI stock to buy now is valuation. As we currently stand, the price-to-earnings ratio is 183, a lofty figure by anyone’s standards. This could be a red flag for some investors who’d understandably perceive it to be overvalued.
Further, the market has now adjusted expectations about the future growth rate following the results. This means that Nvidia will struggle to outperform and generate substantial value as the bar has really been raised.
Both are potential risks that could prevent the price moving higher this year.
Potential gains to be had
Regarding the valuation, Nvidia is still cheaper than some AI peers. For example, Advanced Micro Devices has a P/E ratio of 272. Marvell Technology is at 197. So relatively speaking, if an investor wants to buy a large AI stock, there’s still a good case for buying Nvidia.
I’d also flag up the huge potential of AI going forward. I’ve heard various figures thrown around about the size of the sector by 2030. The bottom line is this area is going to be very large. With Nvidia arguably the most advanced in the field right now, I feel that long-term gains could be had when talking about years down the line.
Therefore, despite the recent jump, yes, I do feel Nvidia is the best AI stock for investors to consider buying now.