Nvidia (NVDA) The GPU maker has been the stock of the post Covid period. Boosted by the seemingly insatiable demand for generative AI, and the chips required to train and run the large language models or LLMs that power the chat bots.
In the autumn of 2014 revenue at Nvidia stood at just $4.60 billion per annum, a decade later and that figure was comfortably above $113.0 billion.
This could grow higher still as the company begins to roll out its new generation of Blackwell chips.
The only clouds on the horizon come from the ability of the firm and its agents, such as TSMC to make these chips, in the volumes and timeframes they are demanded in. And for the end customers to build and power the data centres to make them operable. Though the incoming Trump administration could make that process easier.
When it comes to share price performance the numbers are even more impressive than the firm’s revenue growth. Over the last decade the stock price has risen by almost +28,000.0%. In the last two years the stock is up by +718.00% and year to date it has rallied by +181.0%.
Such has been the appreciation in the value of Nvidia shares that around 70.0% of its employees are now said to be millionaires, and the same is true for many long term investors.
In 2024 the stock has posted 46 new highs, though price momentum has slowed in the second half of the year. For example there have been only 2 new highs over the last month, and the stock is trading some -9.0% below its one month high.
Nvidia is priced for growth, one could even say perfection, on a forward PE of 50.21 times earnings, a price to book of 51.59 times, and a price to cash flow ratio of more than 111.0 times. Price to sales is equally inflated at 55.80.
Many of these ratios make a mockery of traditional valuation methods, advocates of growth investing will tell you that this is a new paradigm or say this time it’s different, often described as the most frightening phrase in finance, and for good reason.
Summary
What’s clear is that Nvidia has been on an extraordinary journey selling the de facto picks and shovels of the AI gold rush. For now at least it enjoys a near monopoly in that technology and that is a licence to print money. But it could also be its undoing, because its rivals, and even its own customers are looking to try and develop comparable technology. That won’t happen overnight, but it can happen over time.
It’s also possible that advances in quantum computing will ultimately eat Nvidia’s lunch, but again that is probably at least a decade away.
Nvidia is too expensive to recommend but too important to ignore. Investors need to have some kind of weighting in AI and Nvidia is the obvious way to play that.
Pros
- Dominant AI market position
- Exceptional revenue growth
- Cutting-edge chip technology
Cons
- Valuation extremely high
- Production bottleneck risks
- Rising competition threats
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Nvidia Outlook
(4)
Overall
4
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