Buy Nvidia stock now?

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Nivea (NASDAQ: NVDA ) It’s one of the most followed stocks today, and it’s easy to see why. The leader in the artificial intelligence (AI) accelerator market has increased its revenue growth and will make it the largest Semiconductor stockMeasured by market capitalization, next Apple.

Unfortunately for investors who want to buy Nvidia shares, the success has made it a purchase decision right now A more difficult problem. Does its technical lead and continuous improvement make it a no-brainer buy, or does the speculation make it too expensive to touch at its current level?

As most tech investors know, the company’s AI accelerators and revenue gains have driven much of the growth in its stock price. As a result, the data center division, which designs AI chips, has grown from the company’s second largest source of revenue to 88% of company revenue in three years.

This is good considering the growing state of the AI chip industry. Grand Vision Research Predictions a Compound annual growth rate 29% by 2030. Between the predicted growth and the immediate shortage, Nvidia is the company best positioned to serve this market.

The innovation doesn’t stop at the CUDA software platform, which reinforces AI chip dominance. Nvidia continues to produce many new products, some of which it announced at CES.

This includes a graphics card built on Blackwell architecture and other AI-driven advancements designed to power humanoid robots and self-driving cars. Although time will tell how these products perform in the marketplace, this innovation raises the possibility that NVIDIA will play a more important role in the tech industry in the future.

To that end, Nvidia generated $35 billion in revenue for the fiscal third quarter of 2024 (ending October 27, 2024), a 94 percent year-over-year increase. Amid that improvement, it generated $19 billion in net income in fiscal Q3, a 109 percent increase from last year.

Of course, investors should be happy to see such growth, and experienced investors know that triple-digit revenue growth in recent quarters is not sustainable.

Unfortunately, investors tend to punish stocks for reduced earnings growth, and the company’s valuation makes it vulnerable, at least if they dig above ground.

The price-to-earnings ratio is above 53. S&P 500 Although many slow-growing tech stocks have high earnings, the avg. A price-to-sales (P/S) ratio of 30 best reflects how expensive the stock is, but that won’t stop investors looking to benefit from Nvidia’s rapid growth.

However, the price-to-book value ratio of 51 is rated in the nosebleed range. In comparison, AMD It trades at more than 3 times book value.

In addition, Nvidia’s success makes the semiconductor industry more subject to the cyclical nature that has always characterized it. Of course, stock prices are likely to hold up, and Nvidia stock will avoid a significant decline in the near future.

Still, the situation represents a key vulnerability. New AI accelerators sell for over $30,000. But if demand slows, prices may follow, slowing or even reversing the company’s revenue growth.

Nvidia stock has pulled back more than 50% twice in the past seven years. Such a reversal can cause another significant failure.

Thankfully, cycles tend to move somewhat higher, so Nvidia stock should eventually recover from any declines due to the new technology. Still, given that a down cycle is inevitable at some point, investors may want to think twice about making large purchases at this time.

As it stands, investors should hold Nvidia as a hedge. Given its valuation scale and the cyclicality of the chip industry, investors are overpaying for Nvidia at its current price.

However, the company enjoys a clear dominance in the AI chip industry, and this is unlikely to change soon. What’s more, its continuous innovation will strengthen that dominance and drive even more long-term growth.

So staying the course while weighing Nvidia’s strengths against its challenges may be the best course of action for shareholders.

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It will be healing. It has places in advanced micro devices. He has spots in the Motley Fool and recommends Advanced Micro Devices, Apple and Nvidia. The Motley Fool has Disclosure Policy.

Buy Nvidia stock now? Originally published by The Motley Fool.