Nvidia (NASDAQ: NVDA) stock looks really cheap at the moment. Currently, it’s sporting a forward-looking, price-to-earnings (P/E) ratio of just 14.2 – well below the US market average.
Is it time to consider buying the AI chip stock if you don’t own it (or more of it if you do)? Let’s discuss.
The stock has some obstacles
Nvidia’s share price has stalled. Right now, it’s only a few percentage points above the level it was at last October.
I think one obstacle is the company’s $5trn+ market-cap. I reckon a lot of investors are struggling to see how it can get bigger from that level (note that Nvidia’s the largest company in the world today).
Others are probably wondering how long the AI spending boom can last. In recent years, Nvidia has pocketed hundreds of billions of dollars from companies such as Google, Microsoft, and Amazon, and SpaceX as they have built out AI infrastructure.
One other issue is that there are lots of other companies benefitting from the AI buildout today. From memory chip companies to energy businesses, their stocks are creating competition for capital.
Growth’s still phenomenal
While the share price has stalled however, the company’s results continue to be exceptionally strong. For example, last quarter, the chip powerhouse generated $96.2bn in revenue, up 106% year on year.
Looking ahead, the company now expects to grow revenue by 70% next financial year (FY28). That would take its top line to around $700bn – about 224% higher than the figure last financial year ($216bn).
It’s not just a revenue growth story though – earnings are rising sharply too. This is why the stock looks so cheap now. At present, analysts expect earnings per share of $9.28 this financial year and $15.80 next. Take that latter figure and compare it to the current share price, and we get the P/E ratio of 14.2 mentioned at the top.
I’m a buyer here
So is there an opportunity to consider here? I believe so – I’ve been adding to my own holding recently.
I’m not concerned by the $5trn market-cap. I see no reason why Nvidia couldn’t double that in the not-too-distant future
Meanwhile, I’m not worried about a major slowdown in spending on Nvidia’s chips. Recently, Elon Musk said that SpaceX will only use Nvidia’s GPUs going forward, and this company is just getting started when it comes to building out AI infrastructure.
I also think the AI boom has a long, long way to go. In the years ahead, we’re about to see a ton of ‘physical AI’ come to market (think humanoid robots and self-driving cars) and this technology’s going to need advanced chips.
Of course, I could be wrong about all of this. There’s a chance that AI spending could slow and Nvidia’s growth could moderate. Right now though, it looks like Nvidia has years of strong growth ahead. So I still see long-term potential in the stock.
Should you invest £5,000 in Nvidia right now?
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Edward Sheldon owns shares in Nvidia, Microsoft, and Amazon.
