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Is it too late to buy NVDA stock?
Nvidia (NASDAQ: NVDA) shares are riding high in the seas of artificial intelligence (AI). The chip designer has taken the lead in the AI hardware race, leading to incredible business results and soaring stock prices.
The stock traded at a with split adjustment $14 per share when OpenAI launched the ChatGPT generative AI engine, powered by thousands of Nvidia AI accelerator chips. Today, Nvidia’s share price soared to $131. With $3.2 trillion market valueis one of the three most valuable companies on the stock market.
Did you miss the AI-powered Nvidia opportunity, or can the stock continue to rally from this high? Let’s find out.
The advantages of Nvidia
Nvidia’s financial success is indisputable. Revenues have more than tripled year over year in the last two earnings reports. Free cash flows are consistently growing at around 500% over the same period. Microsoft (NASDAQ: MSFT) and Litter (NASDAQ:AAPL) are still more profitable than Nvidia, but the chip specialist is recovering.
Many market observers like to point out that the generative AI revolution is just beginning. ChatGPT is less than two years old. Only a few tech giants have created comparatively powerful large language models (LLMs) so far, although many are working on their own long-term generative AI plans. Until further notice, Nvidia’s accelerator chips are the gold standard against which other solutions should be evaluated. If you are building a strong AI system, Nvidia solutions are the standard and the industry standard. Others must develop and then prove some kind of unique advantage before winning AI contracts against Nvidia’s killer products.
Imagine Nvidia maintaining its leadership as the generative AI market grows. It’s not hard to see shares rising even higher in the coming years.
The possible disadvantages of Nvidia
On the other hand, the good financial news and many future expectations are already priced into Nvidia shares. Shares are changing hands at glowing valuation ratios like 82 times free cash flow and 40 times sales — levels typically reserved for small-cap startups with more enthusiasm than substance.
At the same time, Nvidia does not remain unchallenged in the AI accelerator market. Archrival Advanced microdevices (NASDAQ: AMD) has its Instinct line of budget AI chips. O Information (NASDAQ: INTC) The Gaudi series delivers impressive performance per watt of electrical power. And that’s just the top of a big pile. There is more than one way to design an AI processing system, and rival solutions can offer compelling alternatives for specific use cases. Who’s to say Nvidia will maintain its market-defining leadership in the long term?
The story continues
Separately, the high valuation and stiff competition issues should be enough to make most investors hesitate before hitting the “buy” button on Nvidia stock. Together, it’s a high-wire act with a long way to go. Nvidia shares are perfectly priced, and any misstep — like a big AI contract lost to Intel or AMD — will likely result in a quick and painful price drop.
Should you buy, sell or hold Nvidia?
I’m not saying you should sell all your Nvidia shares now and never look back. The company could very well fend off the army of rivals and continue to innovate at a level that is difficult to match. In fact, a little exposure to Nvidia could serve your portfolio well over the years.
In the meantime, I highly recommend taking some profits off the table by selling a portion of your long-term holdings in Nvidia. The gains are more than substantial and I’m sure you can find more stable and safer ways to invest that money in the AI market.
So on a buy, sell or hold scale, I see Nvidia as a stock to hold for the long term. I’d rather sell some shares than buy more at these nosebleed-inducing stock prices. Your mileage may vary depending on your market risk appetite and AI-driven enthusiasm. Feel free to do your own research and come to different conclusions. Just don’t say I didn’t warn you if or when Nvidia’s big price correction will occur.
Should you invest $1,000 in Nvidia now?
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Anders Bylund has positions in Intel and Nvidia. The Motley Fool has positions and recommends Advanced Micro Devices, Apple, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel and January 2026 $405 short calls on Microsoft. The motley fool has a disclosure policy.
Is it too late to buy NVDA stock? was originally published by The Motley Fool