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Why this is a good moment to buy Nvidia stock

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buy nvidia stock

If you’ve been searching for stocks to invest in, it is probably that you have heard about Nvidia’s incredible stock performance over the past 18 months. It’s truly been a remarkable run, with the chip manufacturer’s shares skyrocketing nearly 7 times during this period. But, some investors might be put off by the option to buy Nvidia stock because of such exceptional growth, thinking it’s overvalued. 

However, did you know that momentum can be a great predictor of future stock performance, especially if the company has a track record of beating expectations? Analysts are still bullish on buying Nvidia stock, not just because of momentum, but also because the company is at the forefront of the AI revolution, which is just getting started. Exciting times for Nvidia shareholders upfront!

Nvidia’s dominance in AI

Nvidia is a company that plays a central role in the AI revolution. This is due to their graphics processing units that have the exact capabilities needed for vast AI and large language models. Although originally intended for the gaming sector, GPUs are also perfect for fulfilling the massive data processing requirements of AI. 

Unlike central processing units, which handle tasks one after the other, GPUs are exceptional at parallel processing. This feature enables them to handle multiple tasks at the same time. Without this technology, the significant progress made in AI, such as advancements in facial recognition and self-driving cars, would not be feasible.

Nvidia’s GPU architecture is the primary reason for its dominance. In contrast to CPUs with a small number of cores, Nvidia packs a vast number of cores onto a single chip. This enables high processing power within a smaller space, making it essential for efficient AI processing. 

The company has also prioritized high-bandwidth memory, allowing these cores to access data quickly and further speeding up AI computations. As a result, Nvidia has gained a significant advantage in the AI hardware competition. 

Nevertheless, in the AI industry, hardware alone is not enough. Nvidia’s CUDA software provides direct access to the GPU’s virtual instructions. This software ecosystem allows developers to create and refine AI projects and has made Nvidia a one-stop-shop for all things AI.

Isn’t Nvidia stock price too high?

Nvidia stock is not overpriced or expensive when evaluated from a valuation perspective. In fact, it may still offer good value. Its stock currently trades at 35.4x forward earnings, which is more expensive than indices like the S&P 500. Even yet, it is not excessively priced for the tech sector. 

Nevertheless, the cost to buy Nvidia stock has risen to the point where it may not be accessible. At around $900 per share, some investors may find it challenging to include even one Nvidia share in their diverse portfolio of holdings, which is why a stock split may not sound like a crazy idea.

Nvidia announced a stock split in 2021 when their shares were trading at around $600 per share. When the split was implemented on July 20th, 2021, the share price had increased to $743.20. This indicates that the current trading price of Nvidia is about 60% higher than when they announced their last stock split and 30% higher than the share price when the last split was executed.

Last time Nvidia split its stock, the company emphasized they wanted their shares to be “accessible to all.” When asked about an upcoming stock split, Nvidia’s CEO Jensen Huang said: “One of the things I really like about stock splits, by the way, is that it makes for the stock purchase for our employees – and others – |easier|. It’s a good thing. And we want to make sure we do a good job for our employees, they do such an incredible job for us.” 

After all, the idea of buying Nvidia stock with a share price near $1,000 can be intimidating to retail traders, even with fractional trading available.

AI growing industry

Nvidia has played a pivotal role in the development of artificial intelligence, but there are two crucial factors to consider for the future: Nvidia’s competitive advantage in the essential generative AI market and the fact that the AI revolution has just begun.

During the last 18 months, Nvidia has established a formidable position that it has successfully leveraged. Other companies such as Intel are eyeing Nvidia’s leadership, but it is uncertain how they will catch up.

Nvidia’s new H200 chipset is a must-have for generative AI and large language models. The H200 is believed to be 1.4 to 1.9 times faster than H100 when it comes to large language model inference. This is a remarkable increase in performance in just one year.

Furthermore, the market for AI is growing and has the potential to grow much faster. SoftBank’s Masayoshi Son is considering investing $100 billion in the AI chip space, and OpenAI’s Sam Altman is reportedly seeking $7 trillion for a series of AI chip factories that would meet the surging demand and reshape the semiconductor industry worldwide.

Considering the near-term growth in the industry, the persistent demand for GPUs that still outstrips supply, and the fact that we are just at the beginning of the AI revolution, analysts remain optimistic about buying Nvidia stock.

Should you buy Nvidia stock?

Analysts consider buying Nvidia stock a good idea due to its significant role in the AI revolution and attractive valuation metrics. It is expected that the company will continue to deliver outstanding growth. Nvidia’s earnings are estimated to increase by 34.78% annually throughout the medium term.

With an average target price of $913.74, the stock is expected to have a 1.1% upside potential. The highest target price for Nvidia stock is $1,200, while the lowest is $608.40.

(Information in this post is for general informational purposes only. It cannot and should not be considered as suggestions or recommendations regarding investing or financial decisions.)

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