Nvidia (NASDAQ:NVDA) shares surged 25% in post-market trading after the world’s most-valuable chipmaker reported booming demand for artificial intelligence processors. The company’s projections for the three months to the end of July are around 50% higher than analysts’ forecasts.
Let’s take a closer look at this soaring tech giant.
Sales boom
Nvidia shares jumped to $380 after the market closed on Wednesday, and after the Q1 fiscal report. This means the stock is now up a phenomenal 137.5% over 12 months, making it one of the biggest risers on the Nasdaq.
This is quite incredible growth from an already substantial company. Nvidia is now worth something in the region of $900bn, making it the sixth largest listed company in the world.
So, if I’d invested £1,000 in Nvidia shares a year ago, today I’d have £2,375. The stock doesn’t really offer a dividend and I would have to take exchange rate fluctuations into account.
Thankfully, for the sake of this calculation, the pound is only 2% weaker versus the dollar than a year ago. As such, I’d have just over £2,400 from my investment. Clearly, this is a great return.
Can it be sustained?
AI is the buzzword in the tech space right now, and it’s driving demand for Nvidia’s products and services.
Investors have honed in on it as the big winner in the AI sector, primarily because of the overwhelming success and popularity of the ChatGPT programme — which is built on thousands of Nvidia GPUs.
So, it’s the technologies behind the AI revolution where investors see value. Nvidia’s GPUs excel at parallel processing and are easier and more flexible than other products on the market — that’s why developers use their platforms.
CEO and co-founder Jensen Huang, told investors that $1trn of data centre infrastructure will be upgraded to handle so-called accelerated computing in the coming years. This, he said, would allow them to run generative AI tools such as ChatGPT.
The AI spending surge has boosted Nvidia’s data centre unit — which was up 12% with sales at $4.28bn. But, it’s unclear whether this is a short-term boom, or one that will be sustained.
My take
While I’m very optimistic about the company’s data centre unit and the development and application of AI, I’m always cautious when investing in a company that has seen such considerable share price growth.
And because of this huge perceived potential for growth, the stock isn’t cheap. Currently the trailing price-to-earnings (P/E) ratio is around 170 and the forward P/E ratio is around 45. By comparison, Apple trades for around 29 times earnings.
So, while Nvidia may experience ongoing demand for its AI technologies, I’m going to pass right now. Instead, I’ll keep a close eye on the share price and see whether there’s a good entry point.
