2023 has been a strong year for the Nvidia (NASDAQ: NVDA) share price, with it up over 170%. And this impressive form continued in May as the stock rose by 30%.
Entering the month changing hands at $289 and sitting at $378 by the end of it, the artificial intelligence (AI) company that manufactures and designs computer hardware and software, predominantly graphic processing units (GPUs), has gained the attention of a host of investors in the last few weeks.
But what’s been the catalyst for this jump? And with its price soaring, is it too late for investors to buy the stock?
Impressive results
The main reason for the major spike in its share price was the release of its Q1 results. Revenue for the period was up 19% compared to Q4, with its Data Center seeing record revenue of over $4bn. On top of this, net income jumped a massive 44%.
However, arguably more important were the forecasts that the business issued within the results. For Q2, revenue is expected to be $11bn, representing a significant increase on the $7.2bn forecast by Wall Street.
The Nvidia share price rose over 25% in after-hours trading following the release of the results, highlighting the excitement surrounding the company. More widely, US equities also saw a spike on the back of the Silicon Valley-based firm’s rally.
Trillion dollar valuation
With its share price peaking at over $400 towards the tail end of May, Nvidia also spent a short period of time in the exclusive club of companies with a market capitalisation of over one trillion dollars. Joining the likes of Apple, Microsoft, Amazon, and Alphabet, the near $200bn added to its market value following its results made it one of the largest-ever single-day gains in US market history.
The firm is at the forefront of the AI revolution. And with the sector set to boom in the years ahead, it seems that many think that purchasing Nvidia stock is the smartest way to gain exposure to the industry.
Where next?
So, where will the stock head next? And does its impressive performance in May mean investors should be rushing to snap up some shares?
Well, there are a few concerns. Mainly, its valuation is extremely high. Its price-to-earnings ratio currently sits at a staggering 203. For many, this could be deemed excessive.
Furthermore, with its impressive growth, Nvidia may struggle to meet expectations in the years ahead.
Despite this, I like the look of Nvidia. Firstly, comparing it to peers, the stock is still cheaper than a host of competitors.
Also, I think there’s excellent long-term growth potential to be had with the firm. And this has been reinforced by a mass of analysts upgrading their target price for the stock. For example, JP Morgan analysts recently upped their target to $500, while analysts at Barclays have also raised their estimates to a similar price.
While concerns exist, I still deem Nvidia the best stock investors can purchase right now to gain access to the growing industry. Should I have spare cash in the weeks and months ahead, I’ll most certainly be looking to open a position.
