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At market close on 8 April, Nvidia (NASDAQ: NVDA) stock was priced at $96.30. A day later it was up 18.7% to $114.33. What, in that 24-hour period, changed about Nvidia? Absolutely nothing.
There was some political game-playing going on, and investors the world over have been terrorised by the prospects of all-out global trade war. But here’s a question to ask ourselves.
What if we’d switched off the news on 1 April, and not looked in again until today (10 April). We’d see a net result that the US has imposed fairly modest 10% trade tariffs, and even those are likely to be negotiable in the coming months.
Missed the bottom
We’d also see plenty of investors who hadn’t panicked and who picked up Nvidia shares at the cheapest they’d been for nearly a year. How many times have we thought: “If only I could turn the clock back a year and snap up that opportunity I missed“?
Let me make a few predictions.
The trade protection mania we’ve seen over the past week or so, with equations containing Greek letters and all that, will pass. One way or another, the world will move back to the ideal of free trade (or as close as we can get to it). We’ve seen the huge wealth that trade freedom has helped the planet to create since the end of World War II.
Economics will sweep away politicians. A decade from now, the tariff slump will make a barely perceivable wrinkle on all those upwards-moving stock market charts.
On what basis do I make these suggestions? Just based on looking at the long-term effects that all the last century’s crises have had on stock markets. Hardly any.
Nvidia for the long term
What does all this mean for investors considering Nvidia? Simply that the long-term prospects for the company and the industry it’s in are what really matter. Not what opportunities we might have missed.
On that score, some people fear the billions being ploughed into artificial intelligence (AI) infrastructure is over the top. There may be some truth in that.
There’s further risk from increasing competition from other chip makers. And to be fair, the hanging threat of protectionism and trade war can only push countries like China to boost their efforts.
Valuation, valuation
I expect stock market analysts have been working hard on revising their forecasts pretty much day by day. And now they’re probably back close to where there were a week ago.
Forecasts suggest Nvidia’s earnings per share could more than double between 2025 and 2028. And that could drop the price-to-earnings (P/E) ratio under 18. One of the world’s leading Nasdaq tech stocks for little more than the average FTSE 100 valuation? That could be a steal if it comes off.
Plenty, however, could happen between now and then.
Does Nvidia’s current stock valuation look cheap compared to its long-term prospects? That’s what matters. And I think it’s definitely worth considering at today’s valuation.
