If you were fortunate enough to invest in Nvidia (NVDA 1.46%) five years ago, you're sitting on some significant gains. The chipmaker's stock has soared close to 1,300% during that stretch. To put into terms just how incredible that is, consider that the S&P 500 has risen by just 78% over that same period. Nvidia has blown past those returns.
It's been a tremendously strong growth stock to own. But with such massive gains already factored into its share price, it begs the question of whether it can still be a good buy today. Nvidia is the most valuable company in the world, with a market cap of $4.4 trillion. Even simply doubling in value from this type of valuation wouldn't be easy.
Is it time for growth investors to finally move on from Nvidia, or can it still continue to be a good market-beating investment?
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Its valuation is clearly weighing on the stock's performance
Nvidia's business is still booming and doing well, as is evident in the company's most recent earnings numbers. Revenue for the period ending Jan. 25 totaled $68.1 billion and rose by a remarkable rate of 73%. It's a growth rate most tech companies would be thrilled with. And for Nvidia, it's not enough to move the needle.
Despite the strong performance, the stock is actually down since reporting those earnings numbers. Nvidia isn't arguably even that expensive of a stock -- it's trading at 37 times its trailing earnings, but that falls to 23 when based on its expected earnings for the year ahead. By comparison, the S&P 500 averages a forward price-to-earnings multiple of 22. Nvidia, one of the most iconic tech companies today, is barely trading higher than that.
There has been some overall bearishness in tech of late as concerns around overspending on AI weigh on stocks. But it may also be that investors are hesitant to continue to price up Nvidia's stock, given that it's already the most valuable company in the world.
NASDAQ: NVDA
Key Data Points
Nvidia's stock still offers good value, but investors should temper their expectations
Nvidia should arguably be doing better than it has this year. The leading AI chipmaker has shown that it is perhaps the best AI stock to own given its incredible growth and impressive profits. Buying the stock on any kind of weakness can be a great idea for investors.
However, it's also important to ensure your expectations aren't set too high, because even doubling in value may not be all that feasible for the stock in the short term. But with a solid business and continually strong demand for its chips, Nvidia is a great investment to simply buy and hold.
