In recent months, I haven’t added many new stocks to my ISA. One reason for this is that I’m quite happy with my share portfolio at the moment. Another reason is that many of the stocks I have my eye on look fully valued at present.
Having said that, I did add one new stock to my portfolio last month. That was technology powerhouse Nvidia (NASDAQ: NVDA), which is listed in the US. I paid around $200 per share for my shares. Here’s a look at why I bought the stock.
Poised to benefit from the AI revolution
Nvidia – which is best-known for its advanced graphics processing units (GPUs) – excites me due to the fact that the company is well positioned to benefit from the growth of both the cloud computing and the artificial intelligence (AI) industries in the years ahead.
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While Nvidia’s high-performance GPUs were traditionally used in video gaming applications, today they’re increasingly used in cloud computing, with major providers such as Amazon and Microsoft adopting them to accelerate workloads.
This adoption by cloud providers is already boosting revenues significantly. However, there appears to be plenty of room for further growth here.
What really stands out about Nvidia, in my view, is the growth potential in artificial intelligence. Because GPUs are extremely powerful, they can dramatically speed up AI computational processes. As a result, they’ve become an essential part of the AI ecosystem.
In the years ahead, companies all over the world are going to spend heavily on artificial intelligence in order to automate as many processes as possible. As a provider of best-in-class AI GPUs, Nvidia looks set to power the AI revolution.
Incredible growth
Looking at Nvidia’s recent second-quarter 2021 results, the company appears to have a considerable amount of momentum at present.
For the period ended 1 August, gaming revenues jumped 85% to $3.1bn. Meanwhile, data centre revenue rose 35% to $2.4bn. Overall, total revenue came in at a record $6.5bn, up 68% year-on-year, while non-GAAP earnings per share came in at $1.04, up 89% year-on-year.
Given that Nvidia has a market-cap of over half a billion dollars, the growth here’s pretty spectacular.
A top UK fund manager is also buying NVDA stock
I’ll point out that I’m not the only UK investor who’s been buying Nvidia stock recently. In recent months, Stephen Yiu, who manages the Blue Whale Growth fund (which has returned about 70% over the last three years) has been buying the stock for his fund. He’s made NVDA a top-10 holding.
Yiu, in my opinion, is one of the best growth-focused fund managers in the UK. So, I’m very encouraged by his purchase.
Risks
Of course, there are some risks to the investment case. One is the stock’s valuation, which is high. Currently, Nvidia sports a forward-looking P/E ratio of about 54. A lot of future growth is priced in. If growth slows, the stock could underperform.
Another is the group’s planned acquisition of UK chip powerhouse ARM. This deal could be blocked by regulators. If it is, Nvidia’s share price could take a short-term hit.
Long-term growth potential
I’m comfortable with the risks however. Nvidia stock has always been expensive and I plan to hold it in my ISA for years.
I think the long-term growth potential here is significant.
