Finance
Is it too late to buy Nvidia stock after the 10-for-1 split?
Artificial intelligence (AI) is one of the hottest industries for investors right now. Semiconductor darling and data center specialist Nvidia (NASDAQ: NVDA) is considered by many on Wall Street to be a lucrative opportunity for AI enthusiasts.
With Nvidia stock up more than 170% so far in 2024, some investors may think they’ve missed the boat.
Let’s take a look at what’s going on at Nvidia, and assess whether this is still a reasonable time to pick up some shares.
Nvidia’s hot start to 2024
2023 marked a new era for the technology industry. Colossi like Microsoft, AlphabetAnd Amazon all have made a series of splashy investments around AI applications.
Some of the bigger investments these tech giants made were buying AI-powered devices semiconductor chipsand ramping up data center services. Since Nvidia has an estimated 80% share of the AI chip market, these moves by the big tech companies have undoubtedly provided a major boost to the company.
The strong momentum from last year’s AI euphoria continued into 2024, and Nvidia investors haven’t stopped buying up the stock. To put this in context, Nvidia stock is up almost 800% since January 2023.
This unprecedented run briefly catapulted Nvidia over Microsoft as the world’s most valuable company by market capitalization. Additionally, as shares continued to soar to new highs, Nvidia management finally decided to implement a 10-for-1 stock split last month.
Nvidia is more than just a chip option
What’s incredible is that much of the story surrounding Nvidia has to do with the company’s chip business. The graphics processing units (GPUs) H100 and A100 are used by companies worldwide, including Metaplatforms And Tesla.
Additionally, Nvidia continues to lead the innovation front in the GPU space with the introduction of its new Blackwell and Rubin chips.
That said, it’s important to understand that Nvidia also makes money from other products and services. In fact, one of the lesser-known growth opportunities lies outside of hardware.
Nvidia’s Compute Unified Device Architecture (CUDA) software platform is already proving to be a lucrative business. Essentially, CUDA is a programming tool intended to be used in parallel with Nvidia’s GPUs. So in a sense, the company is trying to build an end-to-end AI ecosystem that includes both hardware and software.
One of the main reasons why CUDA will become important for Nvidia is the competition in the chip field. Companies like AMD, Inteland even Amazon and Meta are all working on competing GPUs with Nvidia’s.
While it’s still too early to get a sense of the impact these competing products will have on Nvidia, I think it’s pretty safe to say that the company will eventually lose some of its pricing power in chips. As a result, Nvidia’s profit margins will likely take a hit at some point in the future. However, some of this margin deterioration should be mitigated as long as CUDA continues to thrive. The reason for this is that software products typically have much higher margins than hardware.
Is this a good time to invest in Nvidia stock?
The chart below illustrates Nvidia’s price-to-earnings (P/E) and price-to-free-cash-flow (P/FCF) multiples over the last 12 months. While a price-to-earnings ratio of 75.9 and a price-to-earnings ratio of 82.2 may seem pricey, here are some ideas you can explore.
First, both Nvidia’s price-to-earnings ratio and price-to-earnings ratio are lower than a year ago. In other words, despite the rapid rise in its stock price, Nvidia’s earnings and cash flow are accelerating faster. That’s why Nvidia shares are technically cheaper today than they were 12 months ago.
In addition, Nvidia’s leading edge in chips and its under-the-radar software services need to be further analyzed. The company is an investor in Databricks, one of the most valuable AI startups in the world. Nvidia is also an investor in Figure AI – a humanoid robotics developer.
I don’t think the robotics and AI software opportunities are priced into Nvidia stock yet. I think many of these applications are currently overshadowed by the performance of the chip business, and many investors are discounting Nvidia’s potential in other areas of the AI arena.
Long-term investors have the opportunity to easily get acquainted with many different aspects of AI through Nvidia. Despite the rapid rise in share price, the above valuation analysis and some of the other growth opportunities explored provide compelling evidence that Nvidia stock is a good buy right now and that there is significant upside potential ahead.
Should You Invest $1,000 in Nvidia Now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool holds positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 calls of $45 on Intel, long January 2026 calls of $395 on Microsoft, short August 2024 calls of $35 on Intel, and short calls in January 2026 from $405 on Microsoft. The Motley Fool has one disclosure policy.
Is it too late to buy Nvidia stock after the 10-for-1 split? was originally published by The Motley Fool
