Up over 17,500% in 10 years, I don’t think Nvidia stock is done yet

Oliver says Nvidia stock has all the ingredients to keep on climbing for much longer. There might be volatility, but he thinks it won’t last forever.

| 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.

A lot of investors consider Nvidia (NASDAQ:NVDA) stock to be one of the hottest portfolio choices at the moment. However, others are concerned about the company’s valuation. My opinion is that even after gaining more than 17,500% in 10 years, it can still grow in price a lot more from here.

Why I love Nvidia

In my research for this article, I watched an interview with Nvidia’s CEO Jensen Huang on CNBC. In the interview, he mentioned how he attributes his success with Nvidia somewhat to the fact that he keeps the company agile. He means that the firm is willing to adapt to changing market conditions, including capitalising on opportunities and avoiding threats.

Artificial intelligence wasn’t Nvidia’s starting point. It had much more experience in gaming, advanced visual representations, and other forms of high computational power. This translated well into AI operations later. When the next technology shift happens, Nvidia should be prepared for this and scale up its operations accordingly.

Is the valuation really troubling?

Investors who are concerned about Nvidia’s valuation have a reason to be. Traditional value investors look for companies that are trading below the company’s intrinsic worth estimated by forecasted cash flows. However, in the technology industry, it’s very common for companies to trade at a lot higher than this estimate for extended periods of time, and in the case of big tech, for many decades.

Therefore, I don’t think it’s really risky to invest in technology companies like Nvidia that are considered overvalued by traditional measures. The real question is, what does the investing public deem a fair price over the long term? And then, even more important is how likely the firm is to keep on growing and what the business strategy looks like.

Leading analysts expect Nvidia’s growth in the future to be quite phenomenal. Additionally, because I don’t think AI is a bubble, like the internet was in the 1990s, I don’t think the valuation is going to come crashing down. Also, as I mentioned above, Nvidia isn’t just an AI company. It has cleverly positioned itself as the provider of advanced computational power in almost all industries that require more advanced technology tasks.

Where are the real risks here?

Some clever AI companies today are looking for little inefficiencies in Nvidia’s massive strategy. There’s some risk that smaller companies could capture niche portions of the market that Nvidia would like to dominate. Nvidia might be the biggest provider of computational power in the world. However, it could find that it loses the battle of being the most efficient for single tasks.

Additionally, I’m preparing for some periods of share price volatility. For example, in 2025, analysts expect the firm’s growth to slow down. Because the valuation is already so high, investors could irrationally sell off more of the stock than is warranted, out of fear. That means I need to have the right temperament to hold this business through the market’s reactions. I’ll focus on the long-term quality and growth inherent in the business.

Although I’m not a shareholder right now, I think I will be 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.

Oliver Rodzianko has no position in any of the shares mentioned. The Motley Fool UK has recommended Nvidia. 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

Investing Articles

Here’s how I’d target a £5,900 second income by investing £50 a week

We don't need a huge pile of cash to earn a second income. Here's one way I'd aim for it…

Read more »

Grey cat peeking out from inside a cardboard box in a house
Investing Articles

Recently released: May’s small-cap stock recommendation [PREMIUM PICKS]

We believe the UK small-cap market offers a myriad of opportunities across a wide range of different businesses and industries.

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m listening to Warren Buffett and buying bargain shares!

Our writer has been taking lessons from the investing career of Warren Buffett. Here's how he's using it to try…

Read more »

Close-up of British bank notes
Investing Articles

Here’s how I’d spend £6,900 on income shares to try and earn £500 per year

Christopher Ruane outlines some of the investment principles he'd apply when trying to earn £500 of dividends annually by spending…

Read more »

Newspaper and direction sign with investment options
Investing Articles

My 3 picks for the best UK shares to buy in June

Mark David Hartley is bullish about the UK stock market right now. He reckons these are the three best shares…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

23% per annum: is this FTSE 250 stock too good to turn down?

FTSE 250 constituent Games Workshop has posted an impressive return over the last five years. This Fool takes a closer…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Up 60% in a month, could this UK share keep soaring?

After this UK share surged by almost three-fifths in a matter of weeks, this writer has been re-examining the investment…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’m up 25%! The Nvidia share price and other giants power this UK investment trust

I drip-fed some money into this not-so-buoyant UK investment trust and now the Nvidia share price is helping to drive…

Read more »