All eyes have been on Nvidia (NVDA 6.18%) this year as it becomes a key player in artificial intelligence (AI). The company's graphics processing units (GPUs) have become the preferred hardware among AI developers, leading its stock to rise 229% since Jan. 1, alongside soaring earnings.
Nvidia's meteoric rise could easily suggest it is far too late to invest in its shares. However, tech is an ever-evolving arena that often rewards innovative companies over the long term. If held long enough, Nvidia will likely provide investors with significant gains. That being said, there are alternative stocks that allow you to invest in AI at a more attractive price point than Nvidia.
Here's why it's not too late to buy Nvidia stock for investors in it for the long haul, but there might be some better options out there.
Nvidia's business has exploded this year
The launch of OpenAI's ChatGPT in November 2022 led to a surge in the AI market and saw countless tech companies prioritize their own expansions in the technology. Increased interest resulted in a spike in GPU demand for the chips crucial for building AI models. Meanwhile, Nvidia's years of dominance in GPUs gave it a head start over other chipmakers and perfectly positioned it to snap up an estimated 80% market share in AI chips.
So, in addition to substantial stock growth, Nvidia's revenue reached new heights this year. In the third quarter of 2024 (ended October 2023), the company's revenue rose 206% year over year, while operating income soared more than 1,600%. The monster growth was primarily owed to Nvidia's booming data center segment, which posted a revenue increase of 284% as AI GPU sales skyrocketed.
Moreover, Nvidia is profiting from the gradually improving PC market. The company's business was hit hard last year as macroeconomic headwinds curbed consumer spending on tech. However, in Q3 2024, Nvidia's gaming segment posted revenue growth of 81% year over year, suggesting the company could be heading into the new year with multiple high-performing businesses.
Be prepared to hold for the long term
Nvidia has had a stellar year. While its rapid stock growth has benefited current investors, it has significantly raised the price of entry for new ones. The table below compares the price-to-earnings and price-to-free-cash-flow ratios of some of the biggest companies in AI right now.
Nvidia is currently offering more value than Amazon. But it's hard to ignore better deals from Microsoft and Alphabet. In fact, Alphabet's metrics make its stock look like the biggest bargain in AI, considering its plans to launch a highly anticipated large language model in 2024 and significant growth potential in the sector.
Data by YCharts
Additionally, Nvidia's stock has tumbled around 5% since posting its Q3 2024 earnings last week. Despite stellar results, dismal stock performance could indicate that much of its projected financial growth over the next year is already priced into its shares. Therefore, prospective investors should plan to hold Nvidia's stock for five to 10 years minimum before filling up on the company's shares.
Nvidia is on a promising growth path and has shown few signs of slowing down. The tech giant is heading into 2024 on stronger footing than it started this year, with a rapidly expanding data center segment and a return to growth in its PC gaming business.
The company will likely face increased competition in the coming months as other chipmakers challenge Nvidia's dominance with the launch of new chips. However, it won't be easy to chip away at Nvidia's leading market share.
There's plenty to be bullish about Nvidia over the long term. Its powerful position in tech is likely to grant patient investors significant gains, suggesting it's not too late to buy shares in the company. However, it's also worth looking at cheaper options now and waiting for Nvidia's stock to reach a more attractive price point.
