Most investors would be happy with a stock that doubled in five years. They'd likely be ecstatic about a stock that tripled during the same period. Nvidia (NVDA 2.94%) has skyrocketed more than 30x over the last five years. I'm unsure what emotion adequately describes how investors feel about this phenomenal return.
Some expected Nvidia's remarkable momentum to accelerate after the company's 10-for-1 stock split conducted following the market close on June 7. And it did -- for a few days. However, shares have since fallen and are now down close to 8% from their high. So should you buy Nvidia after its post-stock-split pullback?
NASDAQ: NVDA
Key Data Points
The beginning of a big slide or a temporary dip?
No one ever knows for sure when a stock declines if it's the beginning of a major extended downturn or only a short, temporary dip. That's true with Nvidia in this case.
However, it's important to note that there hasn't been any bad news for Nvidia to cause its share price to fall. A few analysts have raised their price targets for the stock. For example, Truist now looks for Nvidia's share price to hit $140 over the next 12 months, up from its previous target of $128.80. Cantor Fitzgerald is even more bullish, raising its price target for Nvidia to $175 from $140.
So why has Nvidia's share price retreated somewhat? Part of the decline could be due to some investors taking profits. But some are also concerned about Nvidia's valuation.
The stock trades at over 47 times forward earnings. This multiple implies expectations of huge growth. Any hiccup with the company would likely cause Nvidia's stock to fall significantly more than it already has.
Why Nvidia should bounce back
That said, I think that Nvidia's recent decline is only a temporary dip. For one thing, there's no reason to be more concerned about the company's valuation now than there was before its stock split.
More importantly, Nvidia will soon launch its new Blackwell graphics processing unit (GPU) platform. CEO Jensen Huang said at Nvidia's shareholder meeting on June 26, "The Blackwell architecture platform will likely be the most successful product in our history." I suspect he'll be proven right.
Blackwell can run large language models (LLMs) at up to 25 times less cost and energy consumption than Nvidia's Hopper GPUs. This is critical because energy costs for running these AI models can be significant.
Huang also said that Blackwell could be the most successful product in the history of computing. I'm not so sure about this prediction. However, I'm confident that Blackwell will keep Nvidia at the top of the artificial intelligence (AI) chip market. I also expect Nvidia will deliver impressive quarterly results in late 2024 and throughout 2025.
Buy Nvidia stock hand over fist?
With the post-split pullback likely to be only temporary, should you buy Nvidia stock hand over fist? Not necessarily.
Your investing style is a big factor in deciding whether to buy Nvidia's shares. Income investors will almost certainly want to look elsewhere. Although Nvidia pays a dividend, its forward yield is a minuscule 0.032%. I think risk-averse investors can find better alternatives, too.
However, aggressive growth investors should still like Nvidia. There are no signs the AI boom is waning. Nvidia continues to dominate the AI chip market. I don't view Nvidia as the hand-over-fist buy that it has been in the past, but the stock could still have plenty of room to run.
