Nvidia Stock Becomes World’s Most Valuable Company: Buy Now or Beware?

Nvidia (NASDAQ:NVDA) stock is now the world’s highest valued company, with a market cap of US$3.34 trillion. So, is the best behind it?

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It’s done it. Nvidia (NASDAQ:NVDA) surpassed Microsoft this week to become the world’s most valuable company. With a market capitalization of US$3.34 trillion, it handily outpaces the rest of the Magnificent Seven, which really now looks like the Magnificent Two.

But even with a recent stock split taken into consideration, is now the time to buy? Or should buyers beware of another drop in share price? Let’s take a look at what’s going on with Nvidia stock.

What happened?

There were many reasons for Nvidia stock’s recent share surge. The company’s stock has seen an impressive rise, fuelled by its dominance in producing processors for artificial intelligence (AI) systems, which are integral to technologies like OpenAI’s ChatGPT. Nvidia’s stock soared by about 174% this year and was the best performer in the S&P 500 in 2023.

Yet, with shares climbing to all-time highs in the four-digit range, the company made the decision to make a 10-for-1 stock split on June 7. Now, shares are at about US$140 as of writing. This led to yet another surge in share price from those who had been sitting on the sidelines.

So, is this it? Or does the stock have more to come?

Recent financial dominance

Nvidia stock’s financial performance has been robust. In the first quarter of fiscal 2025, the company reported record revenues of US$26 billion, an 18% increase from the previous quarter and a 262% increase from the previous year. Key areas contributing to this growth include data centres, gaming, professional visualization, and automotive sectors.

Now, Nvidia stock is well-positioned to continue its leadership in the graphics processing units (GPU), AI, and semiconductor industries. Analysts are optimistic about its future, with Bank of America reiterating a price target of US$1,500 per share (or US$150 after the recent stock split), suggesting a 7% upside. The AI and semiconductor markets are expected to undergo significant infrastructure upgrades, with Nvidia stock leading the charge due to its technological edge and extensive developer support.

Collaborations

Yet, if you fear that it all depends on Nvidia stock, it certainly doesn’t. Nvidia stock has strategically partnered with several key players in the tech industry to bolster its AI and computing capabilities. This includes Amazon; Nvidia is expanding its collaboration with Amazon Web Services (AWS) to enhance the development of AI solutions. This partnership aims to integrate Nvidia’s GPUs into AWS’s cloud services, providing robust infrastructure for AI and machine learning workloads.

Nvidia stock has also created partnerships with Alphabet through Google Cloud, Microsoft through its Azure cloud platform, Oracle, and Johnson & Johnson. All of these should continue to help bring in revenue.

Concerns

Now, no investment is without concerns, and Nvidia stock certainly has some. Despite the company’s strong performance and strategic collaborations, there are several concerns that investors should consider. For instance, as Nvidia continues to dominate the AI and GPU markets, there is a risk of market saturation. The high growth rates seen in recent years may not be sustainable indefinitely, and the company could face challenges in maintaining its current growth trajectory.

Furthermore, Nvidia stock faces increasing competition from other semiconductor companies like AMD and Intel. These competitors are investing heavily in their AI and GPU technologies, which could potentially erode Nvidia’s market share.

There is also the semiconductor industry as a whole. The semiconductor industry has been plagued by supply chain disruptions, which could impact Nvidia’s production capabilities. Any significant disruptions could delay product releases and affect the company’s financial performance. And some analysts now believe the company is overvalued based on this.

Bottom line

All considered, while Nvidia’s strategic collaborations position it well for future growth, potential investors should also be mindful of the various risks and challenges the company faces. Balancing these factors is crucial for making informed investment decisions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Fool contributor Amy Legate-Wolfe has positions in Microsoft. The Motley Fool recommends Alphabet, Amazon, Bank of America, Johnson & Johnson, Microsoft, Nvidia, and Oracle. The Motley Fool has a disclosure policy.

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