Up another 10% yesterday, how high can the Nvidia share price go?

Jon Smith talks through the latest results but flags up why further gains could be harder to come by for the Nvidia share price this year.

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After the markets closed on Wednesday (22 May), Nvidia (NASDAQ:NVDA) released its latest quarterly results. There was a huge amount of anticipation related to these earnings given the size of the company. Further, as the artificial intelligence (AI) poster child, even more people were watching. So with the Nvidia share price climbing almost 10% yesterday after the results, many (me included) are wondering how much further can the stock climb.

Strong results

To understand how much further it could rally, we need to first look at the results. Where ever we looked, the numbers were record-breaking. Revenue hit $26bn for Q1, up 18% from Q4 and up 262% from a year ago.

Earnings per diluted share were $5.98, up 21% from the previous quarter and up 629% from a year ago. The percentage gain figures versus last year are quite incredible. Let’s not forget, the numbers from a year ago showed equally impressive growth!

CEO Jensen Huang further stoked investor excitement by saying that “the next industrial revolution has begun — to produce a new commodity: artificial intelligence.”

As for the outlook, it seems pretty impressive, with Huang noting that demand will continue to beat supply for some time.

At the top of the mountain

Based on the results, I get why the stock jumped. Even though the bar for expectations was set high, Nvidia delivered yet again. But the real question is: what’s the direction of travel today?

The share price is up 240% over the past year, crossing $1,000. Interestingly, there will be a 10-for-1 stock split next month, so this will make the share price a lot cheaper on paper. This could fuel more retail investor buying, as not everyone could afford to buy a stock at $1,000.

I don’t see it plummeting in value in the coming months. But I do struggle to see it continuing to rise at such a rapid pace.

For example, the market cap of Nvidia is now larger than the combined market cap of eight of the other main AI chipmakers/designers. This includes TSMC and ASML. The combined revenue of the eight firms is $274bn, in contrast to Nvidia at $61bn. This doesn’t quite seem to be sustainable to me.

Further, remember when IBM was leading the way with personal computers? It was killing it, but then competitors started to chip away at the market share. I could see a similar thing happening to Nvidia. It’s hard to reach the top, but even harder to stay there.

Trying to find value elsewhere

Maybe I’m being too pessimistic. I don’t own the stock, something a good friend (who does) likes to remind me. I do believe in AI and feel Nvidia will be the frontrunner in the short term.

But as the bar of expectations gets higher and higher, it’s going to be so hard to keep investors happy. On that basis, I prefer to allocate my money to other AI-related stocks that are only just starting to take off.

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.

Jon Smith has no position in any of the shares mentioned. The Motley Fool UK has recommended ASML, International Business Machines, 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.

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