Keeping track of Nvidia (NASDAQ: NVDA) sometimes feels like a job in itself. The stock’s been on a rollercoaster journey this year.
Despite being 144.7% up in 2024, that doesn’t paint the full picture. In fact, its share price has experienced major swings. We’ve seen this in the last month, where it’s taken a 7.4% hit. But could now be a good chance for me to snap up some shares?
A bubble?
A rise as monumental as Nvidia’s was always going to garner plenty of attention. From a relatively unknown business just a few years ago, the chipmaker’s now one of the most talked about stocks on the market. That’s largely due to its 2,628.5% rise over the past five years.
But with that attention comes risk. For example, there’s ongoing talk of a bubble in the artificial intelligence (AI) industry. Plenty of investors are buying into the AI hype. But some believe that investors are snapping up the stock solely out of FOMO (fear of missing out). That opens the door for its share price to come tumbling down should growth slow.
Breaking it down
But to try and get to the bottom of whether Nvidia’s really a stock for me to consider, I want to strip it back and start with the basics. Let’s take a look at its valuation.
As I write, Nvidia trades on a price-to-earnings ratio of 55.4. For context, the S&P 500 average is 23. It’s worth noting that tech stocks often trade at a premium. But even so, Nvidia looks rather expensive, in my opinion.
On top of that, its price-to-sales (P/S) ratio‘s a whopping 30.4. That’s by far and clear the most expensive of the ‘Magnificent Seven’. The closest to Nvidia is Microsoft with a P/S of 13.4. The cheapest is Amazon with a P/S of just 3.4.
Incredible performance
Based on that, Nvidia looks like it may be overpriced. But then again, what’s to say the stock can’t just keep rising?
The company’s results in recent years have been incredible. It has constantly beat analysts’ expectations. And we’re all aware of the growth potential in the AI space, which Nvidia’s a leader in. Recently, Jensen Huang, founder and CEO, said that “the next industrial revolution has begun”.
In late August, the firm announced its latest results. For the period, revenue climbed 15% from the previous quarter and 122% from the same period last year. Demand for its products from some of the biggest companies in the world continues to rise. Despite its potential overvaluation, its share price could just keep rising if it’s constantly delivering these sorts of results.
I’m steering clear
But is there really much room for further growth? While its performance has been incredible, the company’s now the third largest in the world by market capitalisation. It has a market-cap of $2.6trn. Only Apple and Microsoft are larger. With that in mind, it’s tricky to see how Nvidia could grow this by several trillion more.
Couple that with the threat of an AI bubble and the large volatility the stock has experienced this year, and I’m put off from snapping up any Nvidia shares right now. For the time being, it’ll remain on my watchlist.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Apple, Microsoft, and Nvidia. 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.
