Nvidia (NASDAQ: NVDA) stock’s produced incredible gains in 2024. But it’s had a double-digit percentage pullback recently.
I own a few Nvidia shares and they’ve really boosted my investment portfolio this year. Would I be crazy to buy more shares now? Let’s discuss.
Is it cheap or expensive?
There are two main factors I’m going to look at in order to answer this question:
Nvidia’s valuation today
Nvidia’s size in my portfolio
Starting with the valuation, I actually think it looks quite reasonable. At present, the tech stock trades at roughly 31 times next year’s earnings per share (EPS) forecast. That’s not high relative to the level of growth the company’s generating.
Next year, EPS is expected to grow 38%. So the price-to-earnings-to-growth (PEG) ratio here is less than one right now. A PEG ratio under one can signal that a stock’s cheap.
Of course, if growth was to slow, or come in below Wall Street’s expectations due to lower demand for AI chips, Nvidia’s share price could fall.
However, I don’t believe growth’s going to slow dramatically in the near term. One reason I say this is that recent earnings from the likes of Alphabet and Meta Platforms have shown that these companies are spending an absolute fortune on AI chips at the moment. Another is that rival AMD recently said it was seeing huge demand for its AI chips. In the second quarter of 2024, its data centre revenues more than doubled year on year.
So overall, I don’t have a problem with Nvidia’s valuation today.
Where it sits in my portfolio
Moving on to my portfolio, this is where things get a little more complex. After Nvidia’s huge share price rise this year, the stock’s now about 7% of my portfolio. That’s quite a large position. I wouldn’t want it to be much bigger than this.
That’s because this stock can fall 30% or more in the blink of an eye (it fell nearly 40% in June and July). If I had 20% of my portfolio in Nvidia and the stock fell 50%, it could really hurt my overall returns.
So I need to be sensible here and think about risk management.
I would be comfortable boosting the size of my position a little. But only by a percentage point or two.
Will I buy?
Putting all this together, I don’t think it would be crazy to buy more Nvidia shares for my portfolio today. The stock trades at a reasonable valuation (in my view) and I have the risk tolerance to boost the size of my position slightly.
Of course, I’d love to buy the stock at a lower price. So I may hold off on buying right now just to see if market volatility creates a better buying opportunity in the weeks ahead.
The post Would I be crazy to buy more Nvidia stock today? appeared first on The Motley Fool UK.
Should you invest £1,000 in Nvidia right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Nvidia made the list?
See the 6 stocks
More reading
Down 6% last month! Is it time to sell my Nvidia stock?
Forget Nvidia: 1 stock down 19% to buy for the artificial intelligence (AI) revolution
Will the stock market crash in August?
What on earth’s going on with the Nvidia share price?
2 famous shares I’d give a wide berth to in today’s stock market
Edward Sheldon has positions in Alphabet and Nvidia. The Motley Fool UK has recommended Advanced Micro Devices, Alphabet, Meta Platforms, and Nvidia. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
