Nvidia stock is up nearly 800% over the past 18 months.
Artificial intelligence (AI) is one of the hottest industries for investors right now. Dear Semiconductor and Data Center Specialist Nvidia (NVDA 1.44%) is considered by many on Wall Street to be a lucrative opportunity for AI enthusiasts.
With Nvidia shares up over 170% so far in 2024, some investors may think they’ve missed the boat.
Let’s take a look at what’s going on at Nvidia and assess whether now is still a reasonable time to pick up some shares.
Nvidia’s hot start in 2024
2023 marked a new era for the technology industry. Behemoths such as Microsoft, AlphabetAND Amazon all made a number of prominent investments revolving around AI applications.
Some of the biggest investments these tech giants made were buying AI-powered semiconductor chips, as well as ramping up data center services. Considering that Nvidia has an estimated 80% share of the AI chip market, these moves from the tech giant undoubtedly served as a big boost for the company.
The strong momentum from last year’s AI euphoria carried over into 2024, and Nvidia investors haven’t stopped buying the stock. To put that into context, Nvidia stock is up almost 800% since January 2023.
This unprecedented run briefly catapulted Nvidia over Microsoft as the world’s most valuable company by market cap. Additionally, as the stock continued to eclipse new highs, Nvidia’s management finally decided to implement a 10-for-1 stock split last month.
Image source: Getty Images.
Nvidia is more than just a chip option
What’s incredible is that much of the narrative surrounding Nvidia deals with the company’s chip business. Indeed, its H100 and A100 graphics processing units (GPUs) are used by companies around the world — including Meta Platforms AND Tesla.
Additionally, Nvidia continues to lead the innovation front in the GPU field with the introduction of its new Blackwell and Rubin chips.
With that said, it’s important to understand that Nvidia makes money from other products and services as well. In fact, one of its lesser-known growth opportunities is outside of hardware.
Nvidia’s Computing Device Unified Architecture (CUDA) software platform is already proving to be a profitable business. Basically, CUDA is a programming tool intended to be used in parallel with Nvidia GPUs. So in a sense, the company is trying to build an end-to-end AI ecosystem that includes both hardware and software.
One of the main reasons CUDA will be important to Nvidia is because of competition in the chip space. Companies such as AMD, Inteleven Amazon and Meta are all working on GPUs competing with Nvidia’s.
While it’s too early to tell how these competing products will affect Nvidia, I think it’s pretty safe to say that the company will eventually lose some of its pricing power in the chip space. As a result, Nvidia’s profit margins are likely to take a hit at some point in the future. However, some of this margin deterioration should be mitigated as long as CUDA continues to thrive. The reason is because software products tend to have much higher margins than hardware.
Is now a good time to invest in Nvidia stock?
The chart below illustrates Nvidia’s price-to-earnings (P/E) and price-to-free cash flow (P/FCF) multiples over the past 12 months. While a P/E of 75.9 and a P/FCF of 82.2 may seem expensive, there are some ideas to explore here.
NVDA PE report data according to YCharts
First, both Nvidia’s P/E and P/FCF multiples are lower than they were a year ago. In other words, despite the rapid rise in the share price, Nvidia’s revenue and cash flow are accelerating at a faster rate — therefore, Nvidia stock is technically less expensive today than it was 12 months ago first.
Additionally, Nvidia’s commanding leadership in the chip space and its under-the-radar software services should be further analyzed. The company is an investor in Databricks, one of the world’s most valuable AI start-ups. Nvidia is also an investor in Figure AI – a developer of humanoid robotics.
I don’t think the opportunities in robotics and AI software are priced into Nvidia stock yet. I think many of these applications are currently overshadowed by the performance of the chip business, and many investors are discounting the potential Nvidia has in other areas in the AI arena.
Long-term investors have an opportunity to gain exposure to many different aspects of AI simply through Nvidia. Despite the meteoric rise in the share price, the valuation analysis above, as well as some of the other growth opportunities explored, make a compelling case that Nvidia stock is a good buy right now and could have a lot of significant upside. .
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokesperson for Facebook and sister of 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. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.