Nvidia (NASDAQ:NVDA) stock’s the bellwether of the artificial intelligence (AI) revolution. And that’s reflected in the share price.
At the time of writing, and prior to the one-for-10 stock split, a single Nvidia stock is worth $1,224. It’s up 206% over 12 months. However, some of us were a bit late to the party. I picked up the majority of my shares in the autumn.
So if I’d invested £1,000 in Nvidia stock six months ago, how much would I have now? Well, amazingly, I’d have £2,590 — not allowing for a small fluctuation in the exchange rate. The stock’s up 159% over six months.
So how did this all happen, and are newcomers too late to invest?
Nvidia and AI
Nvidia rose to prominence by building graphics processing units (GPUs), originally meant for 3D graphics rendering in gaming. But in the 2000s, Nvidia launched CUDA, a platform allowing developers to use GPUs for general-purpose computing tasks beyond graphics rendering.
This opened a world of possibilities for Nvidia’s GPUs, immediately increasing scientific use and early AI tasks.
In addition to having parallel processing capabilities, GPUs also had scalability. In other words, multiple GPUs can be used all at the same time to handle even bigger computations.
The AI boom, which really started with the popularity of ChatGPT in late 2022, fuelled GPU demand for training large language models.
Earlier that year, Nvidia unveiled its Hopper architecture for the world of AI and data centres– to be superseded by Blackwell this year — and the Ada Lovelace architecture.
Nvidia’s data centre revenue has grown from $2.05bn in Q1 2022 to a staggering $22.5bn in the last quarter.
Despite increasing competition, Nvidia’s continuing to innovate to stay at the front of the segment.
Still worth buying?
While Nvidia has 37 ‘buy’ ratings and three ‘hold’ ratings, the stock’s currently trading at a 1.55% premium to the average share price target, which is $1,205.
However, it’s often the case that analysts’ forecasts struggle to keep up with surging share prices. After all, they don’t update their share price targets every day.
The stock’s currently trading at 43 times forward earnings. That’s clearly expensive for UK-focused investors.
But this valuation’s all about growth, with the company’s earnings expected to grow by around 40% annually. In turn, this leads to a price-to-earnings-to-growth (PEG) ratio of 1.14.
For me, this PEG ratio still signals ‘buy’, but I appreciate the stock’s trading closer to its fair value than it has been.
Competition arguably represents the biggest threat to this thesis. The company’s valued on the assumption that it will remain dominant in the market. As we all know, developments can take us by surprise in fast-moving industries.
The bottom line
Nvidia’s made a lot of people wealthier over the past 18 months. However, looking forward, the stock’s less clearly undervalued than it has been.
Personally, I’m still a fan, and I’d consider buying more. It’s also worth considering that the stock split will provide many new retailers with access to the shares, potentially creating more demand.
