Nvidia: The Stock to Invest In Now

There are many reasons to consider purchasing Nvidia stock, with only one significant reason to hold back.

Recent years have seen a revival in stock splits, a practice that was quite common in the 1990s. After falling out of favor for some time, stock splits have made a comeback among a new generation of investors. Typically, companies decide to split their shares following successful growth and strong financial performance, which is often reflected in rising stock prices.

Several companies have executed stock splits this year, such as:

• Nvidia (NVDA) has announced a 10-for-1 split that will take effect on June 7, 2024.
• Chipotle is set to implement a 50-for-1 split on June 25, 2024.
• Broadcom conducted a 10-for-1 split to be effective on July 12, 2024.
• Super Micro Computer executed a 10-for-1 split payable on September 30, 2024.

The common theme among these companies is that they have delivered outstanding returns over many years.

If I could only purchase one stock right now, it would certainly be Nvidia. Allow me to explain why.

Exceptional Insight

Many investors, including myself, recognize the immense potential of artificial intelligence (AI) as a primary catalyst for owning Nvidia stock. However, an interesting aspect of this company is CEO Jensen Huang's remarkable ability to anticipate emerging trends and innovate accordingly.

Nvidia was a pioneer in launching the graphics processing unit (GPU) back in 1999, transforming the gaming industry. However, Huang was already looking ahead; by 2006, he had adapted GPU technology for supercomputing. Today, the GPU has become the standard in cloud computing and data centers, capturing an impressive 98% of the market for data-center GPUs last year, according to TechInsights.

Interestingly, Huang positioned Nvidia for the anticipated AI revolution as early as 2013, even when AI was not yet mainstream. When AI gained traction early last year, Nvidia reaped the benefits of this foresight.

Financial Success

As they say, “a picture is worth a thousand words,” yet in this case, Nvidia’s financial performance speaks volumes. For the second quarter of fiscal 2025, Nvidia reported record revenue of $30 billion, showcasing an astounding 122% increase year over year and a 15% rise sequentially. This outstanding performance was driven largely by record data-center revenue, which hit $26.3 billion—a remarkable 154% increase. Profits skyrocketed as well, with diluted earnings per share (EPS) jumping 168% to $0.67.

Looking ahead, management anticipates that Nvidia's growth will continue, albeit at a slower rate. They forecast revenue of $32.5 billion, representing a 79% year-over-year increase, along with an expected rise in profitability. Although this growth is slower than the triple-digit increases seen in previous months, it is still an impressive achievement.

Why Invest Now?

You might be wondering if it’s too late to invest in Nvidia stock now that it has already experienced tremendous growth, soaring 837% since the beginning of last year and recently reaching new heights.

However, we are still in the early stages of the AI revolution, and new applications are continually being developed. While some might point to early mishaps as evidence that the technology isn’t ready yet, it’s likely that these issues will soon be resolved, allowing AI to flourish. Therefore, one could argue that the best gains related to AI are still ahead.

Estimates regarding the generative AI market size vary widely, with Bloomberg Intelligence predicting it could reach $1.3 trillion by 2032. More ambitious forecasts, like those from Ark Invest's Big Ideas 2024 report, suggest that the AI software market alone might generate an additional $13 trillion by the end of the decade, with a more bullish outlook reaching $37 trillion. As we stand, the actual size of the generative AI market remains uncertain, but estimates continue to rise.

Some might argue that Nvidia stock is overvalued, claiming it is “priced to perfection.” They do have a point; the stock currently trades at 64 times earnings and 35 times sales, which is high by most standards. However, this situation warrants consideration of a different perspective.

Analysts’ estimates, which have proven conservative in the past, predict Nvidia will achieve EPS of $4.05 for fiscal 2026 starting in January. Based on the stock’s recent closing price, this indicates a forward earnings ratio of about 33, not significantly higher than the S&P 500’s multiple of 30. Additionally, Wall Street anticipates that Nvidia’s profits will grow by 52% annually over the next five years, further justifying its premium valuation.

All signs point to a strong case for Nvidia's continuing growth, the expanding AI market, and the notion that the stock may not be as overpriced as it appears.

Moreover, I trust Huang’s ability to foresee future trends and redirect Nvidia’s technology accordingly, which is a promising prospect for profitability.

For all these reasons, I firmly believe that if I could only buy one stock right now, it would undoubtedly be Nvidia.

Nvidia, Stock, Investment