Nvidia's Shares Surge at the Beginning of 2025, Raising Questions about Late Purchases of the Expanding Company's Shares
With a staggering 171% surge in 2024 and an additional 9% gain by market close on January 6, shares of tech giant Nvidia (NVDA 2.63%) have been shining like a beacon in the financial landscape. This outpaced the S&P 500's year-to-date returns by nearly eight percentage points, leaving investors pondering the stock's potential for further ascension. However, as intriguing as the current momentum may be, it raises the question: is Nvidia stock a buy at its current level, or has its valuation already factored in anticipated business growth?
Soaring Sales and Profits
Without a shadow of a doubt, Nvidia's business is thriving. The most recent quarter's revenue soared by 94% year over year and a modest 17% sequentially, reaching an impressive $35.1 billion. This remarkable growth can be largely attributed to a colossal 112% year-over-year increase in data center revenue, which accounted for an impressive 88% of the quarter's total revenue.
As CEO Jensen Huang declared during the fiscal third-quarter earnings call, "The age of AI is in full steam, propelling a global shift to NVIDIA computing." The positive winds for AI technology are immense, stemming from enterprises eager to incorporate AI into their workflows and even nations recognizing AI investment as a mission-critical aspect of domestic technological infrastructure.
This momentum has translated into impressive profitability for Nvidia. The company reported a staggering $19.3 billion in net income in the most recent quarter, more than doubling the $9.2 billion it reported in the preceding year-ago quarter.
Furthermore, this remarkable growth has bolstered an impenetrable fortress-like balance sheet for Nvidia, with a formidable $38.5 billion in cash, cash equivalents, and marketable securities, even as it ramped up spending on share repurchases. In the nine-month period ending Oct. 27, 2024, it spent a hefty $26 billion on share repurchases.
Treading with Caution
While Nvidia's success story is undeniably captivating, investors should proceed with caution. The company's market capitalization has soared to a towering $3.7 trillion, far outstripping its profits and cash balance. Its forward P/E ratio stands at approximately 27, which is significantly lower than its historical ratio of 95, but analysts suggest that Nvidia's valuation is reasonable, taking future earnings growth into account. However, the semiconductor industry is notorious for its cyclical nature, and relentless competition could pose challenges to Nvidia's dominance.
The specter of a past market heavyweight, Intel (INTC -2.20%), provides a chilling reminder of how a once-dominant player can plummet in just a few years as competitors surge forward and technological advancements outpace the company's abilities to keep up. In the past five years, Intel's shares have plummeted by a whopping 67% in the face of surging competition from Nvidia and other rivals.
So, while the prospect of Nvidia breaking the $150 mark is tantalizing to bullish investors who believe that AI hype and demand will continue to fuel the company's growth, skeptics warn of a correction if growth slows or if macroeconomic conditions deteriorate.
As always, investors should weigh the potential risks against the rewards before diving headfirst into the world of Nvidia stock. It's a dazzling siren call, but the $3.7 trillion market capitalization may have already factored in much of the company's future growth to leave room for only the most ardent believers in AI technology and its ability to continue driving Nvidia's success in 2025 and beyond.
- In light of Nvidia's impressive earnings, investors might consider intensely investing more money in the tech giant, with expectations of further gains by 2024.
- The finance sector has been closely monitoring Nvidia's earnings reports, recognizing the impact of its significant revenue growth and the potential for increased profits.
- Despite Nvidia's impressive performance in 2024, analysts and financial experts are cautiously assessing if the stock's valuation has already taken into account any anticipated earnings growth.
- Even as Nvidia's share price reached new heights, investors are deliberating whether they should buy the stock at its current price or wait for any dips in the market, with concerns about potential economic downturns affecting the tech industry.
