Has Nvidia stock got any growth potential left?

Jon Smith talks through the scale of Nvidia stock growth over the past year but questions if further gains are going to be harder to come by.

| More on:

Image source: Getty Images

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.

Nvidia (NASDAQ:NVDA) was one of the best performing large-cap stocks last year. Over the past year, the share price jumped by 141%, with the market-cap now a whopping $3.37trn.

Yet with all the accolades, there’s a good point being made by some that given the size of the existing move, further gains could be harder to come by. Let’s investigate.

Why the stock jumped so much

The rise of artificial intelligence (AI) has been a key factor in why Nvidia has done so well. More specifically, it’s benefited from generative AI technologies like OpenAI’s ChatGPT. This is because the graphic processing units (GPUs) Nvidia makes are critical for training and deploying AI models. Therefore, it’s currently the go-to provider for companies investing in AI infrastructure.

The huge demand for GPUs meant that financial performance in 2024 was exceptional, both in terms of revenue and profitability. The scale of growth can be seen from the latest quarterly results from November. For the fiscal Q3 period, revenue hit $35.08bn. This was up 94% from the same quarter the previous year!

A higher benchmark

Last month, I wrote about how 2025 could be harder for Nvidia. This isn’t purely based on the business having higher competition. Rather, the bar’s now set so high for financial performance and processor enhancements that it’ll be almost impossible to impress investors.

For example, take the 94% growth in revenue from November. If the next quarterly results show an increase of say 10%, I expect this could cause some panic from investors. Yet for most businesses, 10% revenue growth versus the last year would be something to celebrate.

These lofty expectations could hinder further growth potential for the stock. This could happen even though the business as a whole could keep growing and expanding.

Talking about valuations

With a price-to-earnings (P/E) ratio of 54, it’s not a cheap stock. This doesn’t mean that the share price can’t increase further, but it’s unlikely to repeat the same rally as the past year. For example, if the share price doubled but the earnings per share stayed the same, the P/E ratio would be over 100. In my view, that would be a red flag as a very overvalued stock.

However, Nvidia’s a very unique company. It really is the go-to business for anyone wanting to tap into AI. There’s still a huge amount of potential and adoption that still needs to happen in this sector. So the share price could keep rallying, being fuelled less by fundamental reasons and more by the desire by investors to not miss out.

I won’t be buying Nvidia shares right now. Although I think the company has more growth ahead, I feel there are more attractive AI stock options out there.

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 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 US Stock

Investing Articles

Is it too late for investors to consider buying these outstanding FTSE 100 shares?

Stephen Wright wonders whether now's the time to consider buying shares in the FTSE 100’s outstanding companies, despite some high…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

This growth stock in my SIPP just crashed 33% in 1 day! Should I buy the dip?

Ben McPoland looks at why The Trade Desk (NASDAQ:TTD) shares lost a third of their value inside his SIPP in…

Read more »

Happy African American Man Hugging New Car In Auto Dealership
Investing Articles

1 red-hot stock I love in my Stocks and Shares ISA!

This investor adores one particular high-quality share in his ISA portfolio. So much so, he just can't see himself parting…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

Meta stock is up 17 days in a row! Time to buy this record-setter?

Our writer wonders whether now is the time for him to add Meta stock to his ISA portfolio after its…

Read more »

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

31% revenue growth! This top growth stock just keeps powering on

Shopify (NYSE:SHOP) smashed it in the fourth quarter, wrapping up an outstanding 2024. But is this growth stock worth considering…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

Palantir appears to be the ‘new Nvidia’. Should I buy the stock for my ISA?

AI stock Palantir is generating enormous returns for investors at the moment. Should Edward Sheldon buy it for his Stocks…

Read more »

Investing Articles

What is Warren Buffett planning for in 2025?

Warren Buffett’s Berkshire Hathaway business has been making some interesting investment decisions lately. Our writer investigates.

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Billionaire David Tepper has doubled down on these incredibly cheap shares

This top Wall Street fund manager is known for targeting dirt cheap shares in the stock market. What was he…

Read more »