The Nvidia (NASDAQ:NVDA) share price has hit an all-time record high, peaking at $502.66 per share on 24 August.
That puts it on a stunning 600% rise over five years, and 220% in just the past 12 months.
Is this an unstoppable growth stock that we should pile aboard? Or might we be looking at a bubble waiting to burst?
Growth at what price?
I think the truth lies somewhere in between.
The surge to record share price levels has been boosted by the hype surrounding artificial intelligence (AI). Well, I say hype, though I don’t want to dismiss the technology.
But when it’s clear that people who really don’t know the first thing about it are jumping on any AI bandwagon that comes along, there’s some hype there for sure.
That’s clear when we look at RC365 Holding. The penny stock went through the roof based just on some possible ideas of tentative plans to maybe do something that might be related to AI. Or something.
Revenue and profit
In fact, RC365 has been on a new surge in late August, in line with Nvidia reaching its new heights.
In one key difference, though, Nvidia is earning fat profits from its technology. And analysts expect big growth in revenue and profits in the next few years.
Forecasts put 2025/26 revenue at more than three times the level of 2022/23. And over the same time, they see earnings per share (EPS) multiplying nine-fold. That’s some stunning growth there.
Valuation
Here’s where we come to the tricky bit, valuation.
For the year just ended, Nvidia stock shows a trailing price-to-earnings (P/E) ratio of 119. So it would take 119 years at 2023 earnings levels for Nvidia to earn back the value of its stock.
It reminds me of high-flyers like Tesla, which also reached eye-watering valuations. After early excesses, Tesla stock has settled back to a P/E of 74. That’s still very high, but not in Nvidia’s league.
Against that, though, we have the possible effects of future earnings growth.
Cheap, really?
If those forecasts come good, we could see Nvidia stock drop to a P/E of only around 30 by 2026.
And the amount of free cash flow by then might even lay the ground for the start of some decent dividends. That’s not actually on the cards yet, mind, with analysts expecting yields of less than 0.1%.
A P/E of 30 might sound attractive, and it’s pretty much in keeping with the valuations of other semiconductor tech stocks.
But from here to 2026 is a long time in stock market terms. And anything could happen between now and then. So that forward valuation is very far from certain.
What next?
So, where might the Nvidia share price go? In the long term, I feel it could well go a fair bit higher than today.
But before then, I think we could see some profit taking. And maybe some cheaper buying opportunities, when the current AI mania fades a bit.
