Nvidia (NASDAQ: NVDA) simply cannot slow down. The stock continues to surge in share price after superior earnings made up for the huge climb in share price we’ve seen this year. In fact, Nvidia stock has made history on more than one occasion.
But with all headlines pointing to Nvidia stock, is the company now overvalued for new investors? Let’s look at these history-breaking performances and discuss whether now is still a good time to buy.
Record-breaker
Whether it’s Nvidia’s earnings or Nvidia stock’s share price, the company has been breaking records across the board. Most recently, this included reporting record-breaking revenue of US$22.1 billion in sales in its earnings report. This marked a huge 265% year-over-year increase, surging past estimates. It was the highest quarterly revenue ever reported by the company.
Meanwhile, the company’s shares have surged so high that it’s near the top of the most valuable companies in the United States, and indeed the world. Shares of Nvidia stock have now climbed into US$800 share price territory, marking 231% of share growth during the last year alone. Even year to date, shares are up 95%! That’s almost double in three months.
The stock now boasts a market cap of US$2 trillion. This puts it just behind Microsoft (NASDAQ: MSFT) and Apple (NASDAQ: AAPL), but not by much. Indeed, Nvidia stock saw a 16.4% surge in share price on February 22 after earnings, putting it back in record-breaking territory. It was the largest single-day market cap gain ever recorded for any publicly traded company. The stock added US$277 billion to its market cap in just a day after the exceptional earnings report.
Micro and macro
So on a micro level, the astounding earnings gave a boost to Nvidia stock leading to a higher share price. And this could continue throughout the rest of 2024 at least. What’s more, the chipmaker reported strong yearly performance, with confidence and optimism about the future growing among investors.
But part of this performance has been driven by a buying frenzy that supports the growth of artificial intelligence (AI) and gaming stocks in general. These companies will need graphics processing units (GPUs) created for these applications, and Nvidia is a leader in this field.
What’s more, there is generally positive sentiment about the future of the markets for 2024. So that certainly helps the performance of Nvidia stock. However, we need to know whether this run will stabilize. Growth is amazing, but eventually it will either stabilize or drop. So what should investors be aware of in this case when looking at Nvidia stock long term?
Is it valuable?
Nvidia stock may boast strong financial performance, with record earnings. However, that doesn’t mean it’s valuable. In fact, the stock trades at a high valuation, with a price-to-earnings (P/E) ratio far higher than its peers at 68 times earnings.
What’s more, there is certainly competition in the field of AI and GPUs. And the overall stock market as well remains volatile and could be hit at any point. This could even be from continued higher interest rate announcements.
Even so, CEO Jensen Huang has stated again and again that the future is strong for Nvidia. I mean, of course, he would. But it’s backed up. Huang stated there will be a continued focus on AI and accelerated computing, with the potential for more growth from generative AI. And we’re really only starting with AI, as Nvidia eyes reaching beyond traditional markets to healthcare, automotive, and even the metaverse.
Bottom line
With AI growing and Nvidia stock remaining a leader in the field, this year at least looks strong for the company. That said, NVDA is not valuable at these levels. And any announcement on even just a macro level could send shares downwards.
Instead of buying at all-time highs, I would wait for the market to relax a bit and see the stock stabilize before jumping back in. That being said, yes, there is money to be made with Nvidia stock – especially if you eye it as a long-term hold, and not just a buy for a quick buck.
