While many UK shares are struggling to sustain any kind of positive momentum, some listed US companies have been on an absolute tear. Indeed, one of the best things I could have done at the beginning of 2023 was to buy Nvidia (NASDAQ: NVDA) stock.
Just how well has Nvidia stock performed?
Since markets reopened for business at the start of the year, the valuation of the semiconductor specialist has climbed just over 200%. So, had I invested £1,000 in early January, I’d now be sitting on £3,000 or so.
This result can only be approximated because I would need to take into account the costs of making my purchase.
Still, the incredible capital gain over just a few months is further evidence of just how lucrative investing in individual companies can be. The result is even better when you factor in the (admittedly tiny) dividends returned in March.
For comparison, the three-legged outsider that is our FTSE 100 is up a mighty…1.3%.
Granted, that comparison between a whole index in one part of the world and a company in another is perhaps unfair.
But it doesn’t change the fact that I could have made myself a lot richer by venturing across the pond.
Why has it done so well?
The chief reason for Nvidia stock’s form is the explosion of interest in all things related to artificial intelligence (AI) prompted by the release of ChatGPT last November.
When you think about it, it was inevitable that Nvidia would hit many radars.
But it’s not just all hype. The business — now valued at over $1trn — also managed to deliver quarterly results and earnings guidance that knocked analysts for six.
Very often, the reality doesn’t match the story investors are sold. Here, however, was an exception. Nvidia is a solid business generating huge revenue and profits in a white-hot sector.
Can it continue?
Frustratingly, I don’t have a direct holding in Nvidia stock. However, I do have exposure to a number of funds that own it. Naturally, I’m hoping the form seen over the last six months keeps going.
A bullish perspective on this would be that the recovery we’ve seen in big tech is just getting started. This could be accelerated further if the Federal Reserve, having recently elected to pause interest rate rises, eventually decides to reduce them. This would likely see more investors swing back to growth stocks like Nvidia.
In addition to this, the buzz around AI may continue to swell. Barely a day passes without more developments being announced.
As a leading supplier of chips, this company seems to be in the sweetest of sweet spots.
All priced in?
The problem for anyone thinking of investing now, however, is that Nvidia now trades at a seriously high valuation.
As a consequence, it needs to execute everything perfectly. If earning projections are missed, even by a small margin, we could see a wave of profit-taking. This could leave newer holders underwater.
The time to worry is when there are no bears to be found. Such is the topsy-turvy world of investing.
So, as green with envy as I am of those who’ve enjoyed the ride in 2023, Nvidia stock wouldn’t be a priority purchase for me today.
