It’s been a scorching-hot year for shares of chip kingpin Nvidia (NASDAQ:NVDA), which has continued to impress with its new line of artificial intelligence (AI) chips. Indeed, gone are the days when the graphics processing unit (GPU) maker was just viewed as a play on video gaming.
The firm has evolved into so much more, with an enviable position as a forerunner in the rapidly growing AI market. After soaring another 174% over the past year, the big question is can the firm continue to make higher highs, as it supplies the profoundly hot demand for AI chips.
Personally, I think Nvidia can continue to post jaw-dropping quarters as the AI revolution continues to unfold over the next several years. But even if Nvidia can keep blowing the numbers away, that doesn’t mean shares will make higher highs from today’s absurdly frothy levels. Undoubtedly, even Nvidia stock can bleed, as we found out last month, as shares corrected briefly by around 10% from their mid-November peak to the recent December trough. What was behind the fall?
Nvidia stock: Great business and a hefty valuation
It was certainly not a bad quarter for the firm. The company is continuing to grow like it’s nobody else’s business. The main issue comes down to valuation. I’m a massive fan of Nvidia, the market opportunity at hand, and management. However, that’s not enough to justify purchasing shares at north of 60 times trailing price to earnings. Indeed, the best business on Earth can be a poor investment if you pay a price that’s well above intrinsic value. On the flip side, a poor business can be a great investment if you pay a low enough price.
The latter strategy is how Warren Buffett invested in his earlier days as a so-called cigar butt investor. Buffett has since focused on “wonderful” businesses at “fair” prices. In any case, Nvidia stock still looks too frothy for all but the most couregous of investors. If you believe the extremely lofty premium is warranted, then go ahead and pick up a few shares of Nvidia.
However, if you’re a tad worried that speculators have crowded into the name, perhaps it’s wise to take a step back and just wait until someone or something takes the punch bowl away and shares correct to a much lower multiple.
In the meantime, I prefer the likes of Kinaxis (TSX:KXS), an AI-savvy firm that may have flown under the radar of growth investors.
Kinaxis: A potential AI beneficiary to look to in 2024 and beyond
Kinaxis is a supply-chain management software company that can really benefit from the rise of predictive AI. The company is attempting to come back after falling into a rut. Shares are now up over 14% from their October 2023 lows.
For now, Kinaxis is a stock to put on your AI watchlist. It’s not a company to be overlooked, as it looks to the AI frontiers to help change the supply chain as we know it.
Indeed, supply chain management seems like a job that AI can accomplish more efficiently. As Kinaxis continues innovating on the AI front, while teaming up with firms, including the likes of ProvisionAI, I believe the stock can eclipse new highs in due time.
Recently, fellow Fool contributor Amy Legate-Wolfe praised the firm for using AI in its “Rapid Response” technology. I think Amy is right to be so bullish on the stock. Kinaxis with AI could be a force to be reckoned with!
