Is Nvidia a Good Stock to Buy?

NVDA stock looks overextended in the short term, but plenty of long-term tail winds still exist for this juggernaut tech company.

Nvidia's market cap and stock price have risen dramatically over the last two years as inflation fears have faded and Big Tech resumed its reign over the U.S. stock market. But recently, the stock has wobbled amidst valuation concerns and geopolitical instability. Are NVDA shares still a good buy, or should investors wait for the dust of this current market rotation to clear?

Overview of Nvidia

Founded in 1993 by Jensen Huang, Chris Malachowsky, and Curtis Priem, Nvidia revolutionized the tech industry with its invention of the GPU in 1999. Initially focused on gaming graphics, Nvidia's GPUs became the cornerstone of modern computing. But it wasn’t until recently that the company emerged as one of the dominant players in a sector that used to belong solely to the Microsofts and Apples of the world.

Today, Nvidia is a global leader in AI and accelerated computing. Its products include high-performance GPUs for gaming, data centers, and professional visualization applications. Nvidia's CUDA platform empowers developers to harness the power of GPUs for complex computations. Additionally, the company offers AI platforms like NVIDIA Jetson for robotics and autonomous machines and NVIDIA DRIVE for self-driving cars. 

What Factors to Consider if Nvidia Is a Good Stock to Buy

NVDA stock has been a home run for investors since the end of 2022, but is the company still a good buy today? Here are the important factors to consider:

Stock Performance

Nvidia's stock price has experienced a meteoric rise over the past few years, driven primarily by the surging demand for its GPUs. While this stock surge has been justified by the company’s continuous earnings beats, revenue growth is beginning to slow, and Nvidia’s valuation is exceeding fundamentals.

NVDA shares currently trade at 71x earnings (70.9 P/E ratio), the highest figure of the five largest companies in the Invesco Semiconductor ETF (NYSE: PSI). NVDA's price-to-book (P/B) ratio is also among the highest in the sector at 60.6. While strong earnings and expanding margins will likely continue, the stock may have gotten a little too far ahead of itself during its 2024 run. The 10-1 NVDA stock split may make shares appear cheap, but valuation metrics paint a different picture.

Market Position

Nvidia has established itself as the undisputed leader in the GPU market. The company pioneered the development of GPUs for gaming, and its CUDA architecture has become the industry standard for parallel computing. This head start allowed Nvidia to recognize the potential GPUs held for AI advancements, and these units are now the centerpiece of many AI training modules.

In addition to being an early AI adopter, Nvidia plays a major role in gaming, data centers, autonomous driving technology, and developing hardware and tools for its sophisticated processing units.

Financial Performance

Nvidia’s earnings reports have become the can’t-miss events of the stock market, as the company’s tremendous growth has often been justified by its stunning top and bottom-line earnings beats. The company has posted six consecutive earnings and revenue beats in the last six quarters, including a massive 29% upside EPS surprise during its Q2 2023 call.

Nvidia is a money-printing machine, but a few cracks in the armor have appeared lately. Earnings beats have continued; however, the rate of earnings and revenue growth has slowed in each of the last three quarters. After growing revenue an astonishing 34% in Q2 2023, the most recent figure (Q1 2024) showed revenue growth of only 18%. While 18% quarterly revenue growth would excite plenty of other companies, Nvidia’s investors are ravenous for growth and this slowdown could sour their mood.

Growth Potential

As a cornerstone in the rapidly expanding AI and machine learning landscape, Nvidia’s high-performance GPUs have proven to be exceptionally adept at handling the complex computations required for training and deploying AI models.

Nvidia also has an enticing future product road map. In addition to its commitment to building the most powerful AI supercomputers in the industry, Nvidia also plans to unveil Rubin AI in 2026, its most expansive AI platform ever. Nvidia intends to include in this platform:

• An enhanced software ecosystem
• Hardware designed for large AI workloads
• Ability to tailor programming to specific industries like health care, industrials, or finance

Risks and Challenges

The biggest challenge to Nvidia’s continued growth could be logistical – the company simply cannot keep manufacturing processes up with demand for its GPUs. While they have a large head start in the field of AI, competitors like AMD, Intel, and Qualcom are working to disrupt Nvidia’s dominance in GPUs.

Another issue to be wary of is the supply chain from Taiwan to the U.S. Nvidia relies heavily on chips from Taiwan Semiconductor (NYSE: TSM), and geopolitical conflict in China could delay or disrupt Nvidia’s sorely needed supplies.

Expert Opinions

According to our most recent roundup, NVDA shares are still a favorite among Wall Street analysts, although some Nvidia stock forecasts show some rumbling under the surface. Since the start of July, the following firms have reiterated NVDA stock as a Buy:

• Morgan Stanley
• UBS
• KeyBanc
• Benchmark
• TD Cowen

However, NVDA stock also received a rare downgrade in July, as New Street Research moved its rating from Buy to Neutral. Famous asset manager Stanley Druckenmiller also recently reduced his NVDA holdings for a large purchase of small-cap stocks.

How to Invest in Nvidia 

Looking for AI stocks to buy now? NVDA is still a top target for many investors and analysts, so here’s how to buy Nvidia stock for your portfolio.

1. Open a brokerage account: Select a brokerage account that suits your investment goals and trading style. You can review a list of our favorite brokers here.

2. Research Nvidia's stock (ticker symbol: NVDA): Use your brokerage platform to locate NVDA stock and review the company’s fundamental and technical data. Make sure the research aligns with your investment goals and risk tolerance before putting any money to work.

3. Decide how much you want to invest: How much capital is at your disposal? NVDA shares are volatile, so it might be wise to average into the investment and not put all your cash into a single stock. 

4. Place an order: You’ll have two choices here: market orders or limit orders. A market order purchases NVDA shares at the current market price, while a limit order activates once your preset limit price is reached.

5. Consider alternative options:

• Buying Nvidia stock through index funds or ETFs that include it (such as PSI).
• Purchasing fractional shares, if available, through your broker if you have minimal starting capital.

6. Monitor your investment: Is NVDA a good long-term investment? To prove or deny that, you’ll have to stay on top of market trends, company news, earnings reports, and economic data. The investment landscape is always changing, so monitor your single-stock investments and be prepared to adjust your holdings should market conditions change.

Compare the Best Online Brokers for Buying Nvidia Stocks

Should I invest in Nvidia? Before answering that, you’ll need a brokerage account to manage your stocks. Here’s a comparison of our favorite online brokers:

Nvidia Has Been a Big Winner in This Bull Market, But Short-Term Cracks are Starting to Appear

If you invested in NVDA shares in early 2023, you’re likely sitting on a massive gain. But while the stock has been the king of the current bull market, earnings growth is beginning to recede and valuation metrics show an overvalued company. Nvidia has been a great stock to buy over the last few years, but investors might be better served watching from the sidelines during the current market rotation from tech to other sectors.

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