Investors are hesitant to invest in tech stocks these days, even Nvidia (NVDA 0.24%), whose artificial intelligence (AI) chips have made it a top growth stock to own in recent years. On Monday, the stock was trading around $185, which is down around 13% from its 52-week high of more than $212 that it reached back in October.
In recent months, there simply hasn’t been as much excitement around big tech, as investors continue to be concerned about high levels of AI spending, and whether it will prove to be worthwhile in the end. But with Nvidia being a leader in the AI revolution and its growth rate remaining impressive, could the tech stock be a steal of a deal while it trades below the $200 mark?
Image source: Getty Images.
Nvidia’s business is still booming
Although investors appear to be more hesitant to buy Nvidia’s stock these days, it likely isn’t due to the company’s own performance, which remains stellar. Nvidia’s averaged a quarterly growth rate of nearly 115% during the past three years. While it has dipped below that and fallen to 73% in the most recent quarter, it’s still a fairly high rate nonetheless.
NVDA Revenue (Quarterly YoY Growth) data by YCharts
Growth like this is hard to find, and this is even as hyperscalers have begun turning to alternatives, including making their own custom chips. It signifies just how crucial Nvidia’s chips are when it comes to AI development, and why its growth prospects may remain strong for the foreseeable future.
Today’s Change
(-0.24%) $-0.44
Current Price
$182.78
Key Data Points
Market Cap
$4.5T
Day’s Range
$181.90 – $185.40
52wk Range
$86.62 – $212.19
Volume
2M
Avg Vol
177M
Gross Margin
71.07%
Dividend Yield
0.02%
Nvidia’s valuation is high, but its stock is cheap
At $4.5 trillion in market cap, Nvidia is the most valuable company in the world. But when you take into account its level of earnings, then the stock itself suddenly doesn’t look so expensive. Based on analyst projections, Nvidia’s stock is trading at a forward price-to-earnings multiple of 22, which is only slightly higher than the S&P 500 average of 21. But Nvidia is not your average stock, and arguably deserves a higher premium.
Nvidia’s stock isn’t doing all that well this year, but if you’re a long-term investor, it’s not hard to make a case for investing in the company, especially while its valuation remains relatively modest. As a leader in the AI chip space, this is a business that may continue to grow at a high rate in the years ahead. Even if its growth rate were to slow to 50%, its valuation would arguably still look justifiable.
Although the stock may struggle in the near term due to broader market and industry-specific concerns, I think Nvidia can still be an excellent investment over the long haul.