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Nvidia Stocks: Buy High?

Nvidia (NASDAQ: NVDA) is one of the S&P500 the index’s best performers so far this year, on their way to a nearly 180% gain. The share even reached its highest level ever in recent days. This isn’t surprising given Nvidia’s dominant position in the fast-growing artificial intelligence (AI) chip market. Nvidia’s graphics processing units (GPUs) are the fastest available, and customers have flocked to the company for these chips, as well as a wide range of other AI products and services.

All of this has led to mind-boggling earnings growth for Nvidia. The company reported triple-digit revenue and profit increases quarter after quarter. And it looks like that will continue, given a major product launch on the horizon and high demand for that and other Nvidia products.

Does this earnings momentum and future potential mean you should buy Nvidia at its peak price – or is it time to approach this top AI player with caution? Let’s find out.

An investor works on a computer at home.An investor works on a computer at home.

Image source: Getty Images.

The go-to tool for AI

First some background information about Nvidia. The company has gradually increased profits over time, initially focusing on the video game market and then expanding its reach into other industries. The rise of AI really boosted profits, as Nvidia’s GPUs emerged as the “go-to” tool for critical tasks like training and inferring models.

As a result, Nvidia’s recent quarterly revenue surpassed the company’s annual revenue in fiscal 2023. And in its latest quarter, Nvidia reported record revenue of $30 billion, 87% of which came from its data center business. (Data center includes Nvidia’s AI business.)

Looking ahead, there is great potential for more growth, and this is thanks to a launch on the horizon and Nvidia’s continued focus on innovation. The company has developed a new architecture known as Blackwell, along with the most powerful chip ever and five other groundbreaking innovations. The company says it plans to ramp up production in the fourth quarter and expects “several billion dollars” of revenue to come in over the period.

Nvidia has reason to be so optimistic because demand for Blackwell has outpaced supply as the company works around the clock to keep up. And the tech giant expects this trend to continue next year. At the same time, demand for earlier architecture, Hopper, also remains high. This should result in solid revenue growth in the coming quarters.

Nvidia’s annual innovation

And this should extend well beyond the launch of the new Blackwell architecture, thanks to Nvidia’s promise to update its chips annually. So if Nvidia follows that plan, it suggests the company is not in a position of weakness, but will instead continue to build on its strengths before rivals have time to catch up.

Of course, there’s always the possibility that a new player will come up with a different way to power AI tasks – and this could threaten Nvidia’s dominance. For example, Cerebras Systems, a company planning an initial public offering, has launched a technology that could rival Nvidia’s GPUs. But even if this and other small companies have a promising product, it won’t be easy to disrupt Nvidia’s leadership position. Nvidia has spent years earning the trust of its customers by delivering top-performing products, so they don’t easily switch to a younger competitor with a shorter track record.

Should you buy Nvidia?

Now let’s get back to our question. Should you buy Nvidia at the top or view the stock with caution? I prefer to buy at the highest rate for a number of reasons. First, Nvidia may have hit an all-time high, but the stock still remains fairly priced given the company’s track record and long-term prospects. It trades at 48x forward earnings estimates.

Second, because we’re looking at this investment through a long-term lens, it means we can hold it for at least five years (and possibly much longer). And during that period, it’s highly likely that Nvidia stock will rise thanks to demand for its products, its innovation, and overall growth in the AI ​​market.

So I don’t think Nvidia has reached its full potential here at this record level. And that means there’s reason to be bullish on this top AI player and buy and hold for the long term.

Should You Invest $1,000 in Nvidia Now?

Consider the following before buying shares in Nvidia:

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Adria Cimino has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

Nvidia Stocks: Buy High? was originally published by The Motley Fool