Nvidia (NASDAQ: NVDA) stockholders have been on a rollercoaster in recent years. Pandemic lockdowns sent its shares skyrocketing as homebound consumers invested in custom-built PCs for work and entertainment purposes. Then in 2022, an economic downturn brought Nvidia's stock crashing back down, with the PC market suffering the brunt of reductions in consumer spending. The company's stock fell over 50% throughout last year.
However, the tech giant's stock has become a favorite on Wall Street in 2023. Nvidia's stock enjoyed triple-digit growth since Jan. 1, driven almost entirely by its potential in artificial intelligence (AI). The technology has the potential to boost countless industries across tech, with Nvidia well-positioned as a leading chip supplier.
So is it too late to invest in Nvidia stock? Let's find out.
A meteoric stock rise
Nvidia's stock is up around 213% year to date, substantially more growth than nearly any other big tech company active in AI. The semiconductor company rallied investors by snapping up market share in the chip side of the industry, achieving a 90% market share.
Data from Grand View Research shows the AI market is projected to expand at a compound annual growth rate of 37% through 2030. Meanwhile, Nvidia's years of dominance in graphics processing units (GPUs) have perfectly positioned it to become the go-to for AI-minded companies seeking powerful hardware.
Bullish investors were proven right this month when Nvidia's second quarter of 2024 (July 2023) results revealed a 101% rise in revenue. The company beat analysts expectations by more than $2 billion and earnings per share by $0.61. Moreover, Nvidia projects a more significant revenue rise in its current quarter as it is resolving supply challenges quicker than expected.
Nvidia's Q2 2024 earnings are the first real evidence that hype over AI this year is not unfounded. However, the company's stock hasn't moved much since its earnings release, actually slipping about 4%. Wall Street's reaction could signify an end to the rally this year, with Morgan Stanley's Michael Wilson forecasting declines to come.
Cheaper ways to invest in artificial intelligence
If Nvidia shares do tumble, it could be an excellent time to fill up on the company's stock. However, until then, there are cheaper options to invest in the $137 billion AI market.
The chart below shows Nvidia's forward price-to-earnings ratio (P/E) is the highest among some of the biggest names in AI, making it the most expensive stock on the list. Forward P/E is a useful metric for determining a stock's value, as it compares a company's projected earnings with its current share price. An attractive forward P/E is often under 25.
Data by YCharts
As a result, Nvidia's meteoric stock rise this year has made it a bit too expensive for now, meaning it might be too late to invest in the company this year. Prospective investors set on adding the tech giant to their portfolios should be prepared to hold for five to 10 years minimum to see significant gains, as much of Nvidia's projected growth is likely already priced into its shares.
In the meantime, cheaper options like Alphabet and Microsoft are attractive investments. Alphabet is rapidly expanding its AI offering on its cloud platform, Google Cloud, even launching a competitor to ChatGPT, which it calls Bard. Meanwhile, Microsoft is the biggest investor in OpenAI, procuring exclusive licenses on some of the start-up's AI models. If it's the chip market you're after, Microsoft is also investing in AMD's AI chip expansion, providing financial and engineering resources.
It might be too late to invest in Nvidia this year, but it's still a good idea to keep the company on your radar in the event of a sell-off. Investing in the company at the right price could offer substantial gains over the long term.
