Back in April, Nvidia (NASDAQ: NVDA) was one of the companies caught up in the fallout from US trade and tariff policy shifting unexpectedly. Since then, however, Nvidia has more than recovered.
It now sells for 93% higher than it did in the first week of April. So, someone who invested £1k in it back then would today be sitting on a holding worth £1,930.
That is excluding the impact of a shifting pound-dollar exchange rate.
Looking to the future
It also excludes dividends.
Nvidia stock yields 0.02%. So a £1,000 investment now would earn around 20p a year. Investing back in April, the lower price made for a higher yield, but it would still only equate to around 40p a year in dividends.
Such dividends may sound paltry, though as a long-term investor I reckon even modest-seeming yields can end up generating substantial passive income streams thanks to a combination of dividend growth and compounding.
What about growth? Could it still make sense for an investor to consider Nvidia stock today even after it has almost doubled in just six months?
One of a kind
I think it could — depending on the investor’s risk tolerance.
Nvidia may seem like a flash in the pan, with a stock price gain of 1,240% in five years.
In fact, though, this is a long-term success story. (That is putting it mildly: the stock has grown 455,300% since listing in 1999).
It has done so well thanks to developing proprietary chip designs and establishing deep relationships with a lot of large customers.
A large part of why that has been quite so successful is being in the right place at the right time.
The boom in demand for chips, accelerated by companies investing in AI infrastructure in recent years, has effectively given Nvidia a license to print money.
There has been a huge explosion in customer demand. Nvidia has been uniquely positioned to mop up much of that demand and its business model means it has great profit margins.
Last year, for example, its net income of $73bn on sales revenues of $130bn equated to a net profit margin of 56%.
Lots to be excited about
Given those margins, huge profits, and an explosion in sales over recent years, the soaring Nvidia stock price since April is understandable.
Investors worried that trade policies could hurt its sales in key markets. As those concerns receded, they focused once more on the company’s long-term potential.
I think there are still long-term risks from volatile trade policy, in fact. But the main risk I see is that AI demand turns out to be a one-off rather than the start of an ongoing pattern of spending at the same (or even higher) levels.
The reason I do not own Nvidia stock is that risk does not sit comfortably with my own risk appetite as an investor.
But for investors who believe that AI rollouts mean companies will spend more and more on chips in the coming years, I think Nvidia is a share to consider.
It has significant competitive strengths. It is valued at 52 times earnings, but the prospective price is cheaper if earnings keep growing strongly.
