Why Every Investor Should Consider Nvidia

Why Every Investor Should Consider Nvidia

Reading time: 6 minutes

Is semiconductor behemoth Nvidia (ticker: NVDA) still a no-brainer investment consideration, or have markets seen the best that this stock has to offer?

There’s no question that the company has been a considerable wealth builder for investors in recent years, boasting a current market cap of approximately US$2.8 trillion. Impressively, the stock is up +130% year to date and recently touched fresh all-time highs of $1,166, following an incredible +238% gain last year. 

Earnings have also continued to surprise in consecutive quarters, fuelled by increased demand for artificial intelligence (AI) chips. According to the financial results for the first quarter (Q1) fiscal 2025 (up to 28 April 2024), quarterly revenue jumped +18% (US$26.0 billion) from Q4 and was up +262% year on year. Additionally, data centre revenue increased by US$22.6 billion, up +23% from Q4 and an eye-popping +427% year on year. Additionally, earnings increased +461% per share on the year (earnings per diluted share), up US$6.12 and up +19% on the quarter. 

Nvidia also highlighted that a ten-for-one forward stock split will become effective at the close of trading on 7 June 2024 to make the stock more affordable for investors and employees. For those new to stock splits, this does not really change much for the stock’s valuation; all that it means is that Nvidia will trade at one-tenth of the value it currently trades at now, and there will be ten times as many shares out there. 

Jensen Huang, founder and CEO of NVIDIA, commented that ‘the next industrial revolution has begun’ and noted that AI will transform nearly every industry and make them more cost effective. Huang added: ‘Our data center growth was fuelled by strong and accelerating demand for generative AI training and inference on the Hopper platform. Beyond cloud service providers, generative AI has expanded to consumer internet companies, and enterprise, sovereign AI, automotive and healthcare customers, creating multiple multibillion-dollar vertical markets’.

What’s Behind Nvidia’s Run Higher?

Nvidia’s meteoric rise in recent years has been largely thanks to the optimism behind AI. Once primarily known for its dominance in the graphics processing unit (GPU) market for gamers, Nvidia has morphed into a powerhouse at the forefront of AI and a critical player in burgeoning fields like the metaverse and autonomous vehicles.

Some experts believe that Nvidia could top Microsoft (ticker: MSFT) and become the largest company in the world by market capitalisation. Microsoft has a market cap of more than US$3.06 trillion. 

One thing is for sure: AI is here to stay and is making a huge difference across many different industries. Last week witnessed a meaningful rally in the stock’s share price, jumping above $1,100 for the first time following Tesla CEO Elon Musk's announcement that his AI start-up would be working on building a supercomputer that will power the next version of its AI chatbot and that Nvidia would be its supplier. 

Does Nvidia Deserve a Spot on the Watchlist?

Nvidia clearly deserves a spot on many watchlists. 

The stock’s price advance is largely justified. Nvidia is one of the most profitable companies in the world, and the stock price is increasing due to increasing revenue, profits, and cash flow. 

We have a forward price to earnings of 30 (this is essentially what you get in return for what you pay for the stock), which is cheap considering the company's prospects.

Many ask whether they should buy Nvidia before or after the stock split. This depends on your financial situation. If you have a large account size or can buy fractional shares, purchasing the physical stock is likely an option now. If not, then you must wait until the close of trading on 7 June or consider investing in CFDs: Contract for Differences are leveraged derivative products that allow investors to trade the stock’s underlying price movement without the need to take ownership. 

One factor is likely certain: following the split, more people will want to own the stock and this, theoretically, could force price action higher.

Technical analysts will be acutely aware of the bullish trend in play for the stock. Even with basic analytical skills, this will be clear to see. Corrections have been few and far between. However, many will avoid entering a long position at all-time highs. Most trend traders will seek a correction, preferably to a level of support, or wait for resistance to be taken out before considering a long opportunity. The recently breached all-time high of $1,158 (upper red horizontal line) could, assuming a daily close forms above this level, be enough for breakout traders to consider adding to (or opening new) long positions. Alternatively, we may even see another retracement occur and retest the gap between $1,064 and $1,100 (which already served as support last week). Another layer of support to be aware of is seen lower at $967.  

Figure 1: FP Markets MetaTrader 5 Daily Chart of Nvidia