Shares of graphics chip specialist NVIDIA (NVDA -0.68%) jumped 5.1% to close at $281.02 per share on Friday. That level is a wisp away from the stock's all-time closing high of $283.70 set on Sept. 4.
For context, the S&P 500 closed out the session flat.
Friday's winning day brings the tech darling's return to 45.5% so far in 2018, versus the S&P 500's 10.6% return.
Here's what investors should know.
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NVIDIA stock gets an upgrade from Wall Street
We can attribute NVIDIA stock's Friday rise to the Evercore ISI analyst who covers the stock. He raised his price target to $400 per share, up from $300, while reiterating his outperform rating. This price target, reportedly the highest on record among Wall Street firms, represents a 42% upside to the stock's closing price on Friday.
The Evercore note called out NVIDIA's long-term growth potential across its segments, but it summed up the core reason for the big price increase by saying the firm views NVIDIA "as being on the cusp of a tipping point in the company becoming the AI [artificial intelligence] standard platform," according to several published reports.
I surely won't disagree with that, but I'd go one step further: The tipping point has already been reached, in my opinion, at least for the critical training component of AI in data centers. All the tech giants, including Amazon.com, Alphabet's Google, IBM, and Microsoft, have adopted NVIDIA's graphics processing unit (GPU)-based AI platform. While CPUs still dominate the AI inferencing phase in data centers -- which involves having machines apply what they've learned with their training to new data -- NVIDIA is making inroads in that arena.
What's an investor to do?
I've been bullish on NVIDIA since late 2016, when I started covering the stock. That's primarily due to its dominance of the AI training market for data centers, but also to its leadership position in gaming graphics cards and its potential to grab a big portion of the burgeoning self-driving-vehicle market. So my opinion remains that investors should buy NVIDIA stock.
Yes, it's nearly at an all-time high, and that scares some investors. But keep in mind that as every stocks rises, it continuously, though not consecutively, sets new highs. So deciding to not buy a stock solely because it's near or at a new high doesn't make good sense. Moreover, pullbacks are never guaranteed. And, more to the point, whether you buy NVIDIA at $281 per share now or are lucky enough to get it at, say, $240 in the near future will make extremely little difference over the long run if the company keeps up its dominance in data center AI and gaming, and succeeds in the driverless vehicle space.
The best way to invest is to dollar-cost average your way into your full position. (That means investing the same dollar amount at some set interval, such as quarterly.) Doing so assures you won't be buying all your shares at the stock's high for some given time period. Trading costs are very low when you use an online discount broker, making dollar-cost averaging a viable strategy for many investors.
