One of the massive success stories in the stock market Stateside over the past several years has been the performance of chipmaker NVIDIA (NASDAQ: NVDA). NVIDIA stock has been on fire and shot up even further following an outstanding quarterly earnings release this week.
The share price is up 66% simply since the start of this year.
Over the past five years, the performance is extraordinary: a share price gain of 1,936%.
In other words, investing less than $52,000 into NVIDIA stock five years ago would now have made me a paper dollar millionaire (or an actual one, if I chose to sell the shares).
The view from Britain
But while dollar gains are all well and good, as a British investor I invest in pounds.
So, if I want to buy a US stock, my pounds get translated into dollars to buy a share denominated in dollars. When I later sell them, the dollar proceeds get translated back into pounds.
Not everyone is in that situation: it depends on what sort of share-dealing account one has.
It can have very real impacts, though. The long-term gain in value of a US share I own may not translate into pounds at the same rate.
On the other hand, exchange rates might actually work in my favour. It depends on what happens to “cable”, as City traders term the pound-dollar exchange rate.
Full speed ahead
Nonetheless, no matter how weakly sterling performs against the dollar, a five-year dollar gain of almost 2,000% would surely be enormously lucrative for me.
I did not invest in NVIDIA stock five years ago, alas.
But could there be more road ahead for the NASDAQ darling despite it now commanding a market capitalisation of around two trillion dollars?
I think there may be.
AI is a hot investing theme but it is not just an idea. Huge budgets are already being poured into AI in the real world. For NVIDIA, a maker of chips that help organisations harness the power of AI, this could spell a massive opportunity.
The old saying goes that, in a gold rush, buy a shovel maker. Few prospectors may find gold, but most will buy a shovel in the hunt for the glittering metal.
Many AI companies may end up disappointing investors, while some could do spectacularly well. But along the way, most will be investing in the hardware necessary to scale up their AI operations. As a ‘shovel maker’, NVIDIA is set to be a key beneficiary of that.
I’m seriously tempted
That is clearly seen in the firm’s record quarterly revenue reported this week. It was up 22% compared to the prior quarter – and a huge 265% from the same quarter just one year before.
Net income rose 769% compared to the prior year quarter.
Whether such breakneck growth can last remains to be seen. Competitors, international trade disputes, and monopoly investigations are all risks I think could hurt future profitability.
A price-to-earnings ratio in the sixties is far higher than I normally consider. But if earnings growth continues apace, the shares may soon look cheap even at today’s price.
For now, this UK investor is just watching. But, if the chipmaker can keep growing at its recent pace, I will consider buying NVIDIA stock.
