Key Points
Nvidia (NASDAQ: NVDA) has been one of the best stocks to own in the artificial intelligence (AI) arms race. It is up nearly 1,500% since 2023 began, providing investors with incredible returns. Unfortunately, I do not have those returns in my portfolio.
I bought the stock at the beginning of 2023 and watched it double. Then I sold the stock because I was worried that AI computing demand wouldn’t last. I was very wrong. I had to disregard all of the prior gains and purchase shares in 2024 after it had run up some more, which has still been a great investment for me.
Missed AI’s “Act 1”? Act 2 Could Be 15x Bigger. Most investors think they missed the AI boat because they didn’t buy Nvidia in 2005. But according to our analysts, we’re only at the end of “Act 1″—the R&D phase. “Act 2” is the global rollout. Continue »
But would I buy the stock again today? You bet I would.
Image source: Nvidia.
Nvidia is still a dominant force in the industry
Nvidia is turning the investment world on its head. Normally, the law of large numbers dictates that the larger a company is, the harder it is to grow. Nvidia is the world’s largest company and has reached heights that no other company has ever achieved. However, it’s growing faster than any other stock among the world’s top 10 companies. That’s hard to believe, but it showcases just how massive the demand is for AI computing power.
Nvidia makes GPUs, which are the go-to computing unit for all sorts of AI operations, be it training or inference. While there are alternatives, the Nvidia ecosystem cannot be beaten. Additionally, custom AI chips are starting to become more popular among many AI hyperscalers. Still, there will always be a place for computing units like Nvidia’s GPUs that are flexible and can handle a wide variety of workloads.
Due to Nvidia’s market position, it has advanced knowledge of how much computing power the AI hyperscalers are planning. The AI companies are making multiyear plans to ensure they have mapped out when they will need computing units, because data centers don’t go up overnight. This gives Nvidia the ability to issue long-term guidance, and the guidance regarding the AI build-out is simply incredible.
Nvidia estimates that global data center capital expenditures will rise to between $3 trillion and $4 trillion by 2030. Considering the big five AI hyperscalers will spend nearly $800 billion on data centers this year, that’s huge growth still to come.
So, if you think you’ve missed the boat on Nvidia, think again. There is still plenty of upside to come, and Nvidia will be one of the biggest beneficiaries of the AI build-out. However, none of it is priced into Nvidia’s stock.
Nvidia is an absolute bargain at these levels
Contrary to popular belief, Nvidia is not an expensive stock. It trades for a very reasonable 29 times earnings.
NVDA PE Ratio data by YCharts
That’s pretty much in line with where other big tech stocks trade when one-time effects don’t skew their valuations, but there’s one problem: Nvidia is growing far faster than any of its big tech peers. The trailing price-to-earnings ratio doesn’t account for Nvidia’s massive growth ahead, and that’s where a forward-looking metric helps out.
When we value Nvidia’s stock based on next year’s earnings, a different picture gets painted.
NVDA PE Ratio (Forward 1y) data by YCharts
At less than 15 times next year’s earnings, Nvidia’s stock has almost no growth priced into it today. That means the stock has major upside over the next year. Furthermore, with the AI build-out expected to intensify through 2030, that leaves plenty more room for Nvidia to run.
Even if you’ve missed out on Nvidia so far, now is the perfect time to buy more. Very little growth has been priced in, and Nvidia’s stock looks well positioned to be one of the best investments over the next few years.
Should you buy stock in Nvidia right now?
Before you buy stock in Nvidia, consider this:
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Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
