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Nvidia (NASDAQ:NVDA) stock’s up 145% over 12 months. That means £5,000 invested one year ago would now be worth £12,250, plus a little bit extra to account for the depreciation of the pound and a very small dividend yield. It goes without saying this is a very strong investment in everyone’s book.
It’s simply central to AI
Nvidia’s shares have skyrocketed, driven by its pivotal role in the artificial intelligence (AI) revolution. The company’s consistently outperformed expectations with multiple earnings beats highlighting its dominance in the graphics processing unit (GPU) market (GPUs, originally built for gaming, have paralleling processing capabilities that are ideally suited to AI workloads).
Moreover, Nvidia’s success stems from its holistic approach. It’s combined cutting-edge hardware like the Hopper and Blackwell architectures with a robust software ecosystem. This software advantage creates significant switching costs for clients, setting Nvidia apart from competitors such as AMD and Intel, who are also playing catch up on hardware.
The surge in demand for AI infrastructure has propelled Nvidia’s data centre revenue to new heights. Despite a roaring performance in 2023, the division saw sales rise 112% in Q3 2024. And as AI continues to transform industries globally, Nvidia’s earnings are going through roof. It’s truly the kingpin of AI, and Q4 sales are expected to top $38bn… that’s just one quarter.
How much longer can this continue?
The consensus among analysts is that Nvidia will grow earnings by 38% annually over the next three to five years. And given that the stock’s currently trading at 48 times forward earnings, this leads us a price-to-earnings-to-growth (PEG) ratio of 1.31. That’s above the traditional benchmark ratio of one — which suggests overvaluation — but it’s a 32% discount to the information technology sector average. Coupled with incredibly strong profitability grades, including a gross profit margin of 76%, the data suggests this stock will push higher. It’s also worth noting that Nvidia keeps beating expectations.
However, there are risks to bear in mind. As of January, the vast majority of Nvidia’s advanced AI chips are still manufactured in Taiwan by TSMC (Taiwan Semiconductor Manufacturing Company). Investors won’t need reminding that the island nation is at the epicentre of two great powers colliding, and geopolitical developments could therefore harm Nvidia’s supply. This is even more apparent as Donald Trump takes office.
Hard to bet against it
Nvidia currently has a market-cap of $3.6trn and $38bn in cash. This capital strength, combined with its technological leadership in AI hardware and software, puts the company in an incredible position to dominate the new developments in the sector.
One of those developments is in robotics and specifically humanoid robotics, a segment of AI. In short, Nvidia offers the perfect ecosystem for robotics development and it has chosen a collaborative approach, partnering with multiple robotics firms, leveraging its hardware/software synergy efficiently. The upcoming ‘Jetson Thor’ computing platform, set to launch in early 2025, will provide the processing power needed for advanced humanoid robots, positioning Nvidia at the forefront of the rapidly approaching future of robotics.
I’m bullish on Nvidia but I’m probably not buying anymore stock as my holding is already quite large, relative to my portfolio. However, it’s hard to bet against this tech supergiant.
