After gaining over 200% in 12 months, what’s next for Nvidia stock?

Oliver thinks Nvidia stock could be as enduring an investment as Amazon. Even given the valuation risks, he says he wants to own a piece.

| More on:

Image source: NVIDIA

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

When you Google search Nvidia (NASDAQ:NVDA) today, its website comes up with the title “NVIDIA: World Leader in Artificial Intelligence Computing”. I think this quite accurately captures the value that the market sees in Nvidia stock right now.

That being said, as a potential investor, I always want to make sure I don’t take on too much risk. With its shares growing in price so much in such a short time, I’m a little apprehensive about investing in it because of the valuation.

What’s so great about Nvidia?

Many astute investors believe Nvidia was in the right place at the right time. It invested early in its platform, called CUDA, which it initially designed for improved image displays. However, the pivotal moment came when graphics processing units, which CUDA helps in optimising, started to be adopted for deep learning. Suddenly, Nvidia was at the forefront of the AI world.

Most people have acknowledged that AI is going to change the way the world works. I believe that the economy is going to become greatly more productive, and goods and services should become less costly. With Nvidia right at the forefront of these economic shifts, investors are potentially positioned very well.

Nvidia CEO Jensen Huang recently stated, “This year, every industry will become a technology industry”. His vision is to turn Nvidia into the world’s most elite AI foundry. It could be similar to what Taiwan Semiconductor Manufacturing is doing with advanced chip production, but for AI systems.

Could the stock climb higher?

The expectation, according to the consensus among analysts, is that this year is going to deliver the highest growth in terms of Nvidia’s future revenue and earnings. Then, the growth should begin to slow down a bit while still nicely increasing from 2025 to 2027.

The valuation doesn’t look too unreasonable to me. The price-to-earnings ratio of 76 is extraordinary, but I truly believe Nvidia is an extraordinary company.

We have to remember that some elite technology companies trade at much higher valuations than other companies, sometimes for decades. Just look at Amazon, which has had a price-to-earnings ratio of 115 as a 10-year median.

I think Nvidia has positioned itself to be as enduring a company as Amazon. One of the reasons I believe this is that after watching many of CEO Jensen Huang’s talks, he seems incredibly astute, hard working, and willing to adapt to evolving opportunities. I believe good executive management is integral to strong, long-term share performance.

How big are the risks, though?

One of the things I don’t like about investing in companies with a high price-to-earnings ratio is that the shares are very susceptible to changes in investor sentiment. If the company fails to meet its quarterly or annual results expectations, the price could fall more significantly than usual as a result. That’s because a very high price-to-earnings ratio means investors are expecting great revenue and profit growth to continue. If the growth slows down, investors can want to sell their shares with equal enthusiasm as when they bought them.

So, I can see the share price having some significant volatility ahead of it over the next decade. But that isn’t unusual for technology companies. I think this is a great business, and I’ll likely be an Nvidia shareholder soon.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Oliver Rodzianko has positions in Alphabet and Amazon. The Motley Fool UK has recommended Alphabet, Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Photo of a man going through financial problems
Investing Articles

Down 15% in a week! What’s gone wrong with the National Grid share price?

The National Grid share price isn't supposed to crash but now it has. Harvey Jones is wondering whether to take…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

Taylor Wimpey just paid me £158.78. I’m aiming to turn that into a £100k yearly second income

Harvey Jones says small, regular dividend payments can turn a few pounds into a mighty second income, if he gives…

Read more »

A pastel colored growing graph with rising rocket.
Value Shares

These FTSE 250 shares are tipped to rise 14% to 18% in the next year!

Looking for the best FTSE 250 momentum shares to buy? Here are two that City analysts expect to soar in…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Lloyds’ share price is up 20% in 3 months! How high can it go?

Lloyds’ share price has ripped higher recently. Here, Edward Sheldon provides his view on the level it could potentially climb…

Read more »

Investing Articles

Why the Rolls-Royce share price could continue to outperform

The Rolls-Royce share price keeps moving forward, but this Fool thinks it's still behind where it ought to be after…

Read more »

Fireworks display in the shape of willow at Newcastle, Co. Down , Northern Ireland at Halloween.
Investing Articles

The City expects explosive growth in earnings from this almost-penny stock

It’s rare to find earnings predictions as robust as those for this not-quite-a-penny stock, so I’d research and consider it…

Read more »

Investing Articles

As earnings rise 600%, is Nvidia still the best AI stock to buy?

With the supply and demand equation still looking strong for Nvidia, is the stock still the best AI opportunity for…

Read more »

Value Shares

Cheap UK stocks are soaring! Here’s 1 to consider buying now

In recent weeks, many UK stocks have surged. Here, Edward Sheldon highlights a blue-chip FTSE 100 share he believes could…

Read more »