NVIDIA (NASDAQ:NVDA) has been one of the hottest tech stocks on the market over the past year, rising nearly 200% thanks to terrific growth across its entire business. The chipmaker now trades at the higher end of its 52-week range, and it is likely that it could scale greater heights as the emerging tech trends that it is pursuing could substantially boost growth.

But at the same time, investors shouldn't forget that NVIDIA isn't the only one trying to make a living out of graphics chips, self-driving cars, or artificial intelligence. It has well-heeled rivals such as Intel (NASDAQ:INTC) and Advanced Micro Devices (NASDAQ:AMD), among others, who can rain on its parade.

So does this indicate that it might be a good time to start selling your NVIDIA stock, or should investors remain patient in anticipation of more gains? Is now a good time to buy more shares or open a position? Let's check.


Image Source: NVIDIA 

Why NVIDIA could get better

NVIDIA's foray into fast-growing areas of technology has been a successful one so far. The company has been witnessing impressive growth in the automotive and the data center businesses, while the ever-expanding use of graphics cards in applications such as cryptocurrency has also been a tailwind.

NVIDIA's data center revenue jumped 175% year over year during the latest quarter, becoming its second-largest revenue source. NVIDIA's data center business has now witnessed five consecutive quarters of triple-digit revenue growth.

This business won't be running out of steam anytime soon as data centers are going to need more graphics processing unit (GPU) accelerators to tackle complex applications related to high-performance computing (HPC). Markets and Markets forecasts that HPC could be a $36 billion market by 2020, spawning the need for more GPU accelerators as they will be mission-critical for enabling parallel processing to run complex programs.

Furthermore, NVIDIA has established strong relationships with major cloud service providers (CSPs). Amazon -- the biggest CSP in terms of market share -- has been a regular customer of NVIDIA's GPUs to accelerate the performance of its cloud computing platform. Recently, Amazon Web Services (AWS) chose NVIDIA once again to launch a new service that allows users to switch between one, two, or four Tesla M60 GPUs as per their needs.

NVIDIA's GPU accelerators have allowed Amazon to double the computational capacity of the new service as compared to its predecessor. This will make it easier for AWS customers to tackle complex cloud-based applications such as 3D rendering, virtual encoding, or launching virtual reality apps.

Finally, NVIDIA's gaming business, which supplies over 53% of its total revenue, should keep getting better as the PC gaming hardware market is estimated to clock 6% annual growth through 2019. The market exceeded $30 billion in revenue last year, with most of the sales taking place in the high-end market that NVIDIA dominates. As NVIDIA commands over 70% of the GPU space, the market's secular growth should eventually have a positive bearing on the chipmaker's top line as well.

Growth across all these end markets could encourage existing investors to keep holding NVIDIA stock in their portfolios in the hope of more gains.

Why NVIDIA could run into trouble

However, NVIDIA isn't going to have a free run at the opportunities it is pursuing. Intel, for instance, has turned out to be a big hurdle for NVIDIA's self-driving car dreams.

NVIDIA has built a lot of hype around self-driving cars, boasting of its relationships with Tier 1 automakers and component suppliers. Tesla was one such company using NVIDIA technology to power self-driving features and the infotainment system across its electric vehicle range, but Intel now seems to have crashed the party, including via a partnership with Alphabet's self-driving car subsidiary, Waymo.

Furthermore, Intel's formidable automotive alliance plans to put more autonomous cars on the road, posing more trouble for NVIDIA in the automotive space. On the other hand, Advanced Micro Devices could hurt NVIDIA where it hurts the most -- gaming and the data center.

It is no secret that AMD has clawed back substantial market share from NVIDIA in recent months, and it will look to sustain the momentum with the Vega line of GPUs. Of course, there have been concerns that AMD's Vega cards can't significantly outperform NVIDIA's existing lineup, but recent tests indicate otherwise.

An independent test by ComputerBase.de found that the flagship RX Vega 64 blew away the NVIDIA GTX 1080 Ti by some distance under certain test conditions. So, NVIDIA investors shouldn't discount AMD's potential in the high-end GPU space.

Therefore, proper execution by NVIDIA's rivals could dent the company's growth, which makes it a risky bet at the current valuation.

Is it still a good buy?

NVIDIA's hot streak on the stock market has made the stock very, very expensive. It currently trades at a price-to-earnings (P/E) ratio of over 50, which is more than double the 24.2 industry average. Furthermore, a price-to-sales (P/S) ratio of 14.1 as compared to the industry average of just 4.2 suggests that anyone looking to initiate a long position will have to pay a rich premium.

This makes NVIDIA a risky bet for investors buying shares at the current valuation. Analysts expect NVIDIA's earnings to grow at just under 13% a year for the next five years, significantly lower than the 34% annual growth it has clocked in the past five years. However, existing investors sitting on long-term gains might be more comfortable holding as the company works to make more strides in the big-growth markets.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.