Artificial intelligence (AI) is one of the biggest investment themes right now. Amid the excitement, the share prices of many tech companies and semiconductor firms have been catapulted to astronomic highs. However, few have benefitted more than the poster child of generative AI — Nvidia (NASDAQ:NVDA) stock.
Its business model is multi-faceted and highly profitable, spanning powerful graphic processing units (GPUs), data centres, and AI model development and training. Over the past 18 months, the company’s consistently stunned investors with big earnings victories quarter after quarter.
So let’s take a closer look at what a £3k investment made in late 2022 would be worth today.
18-month return
The date a year and a half ago was 14 November 2022. A little over two weeks after this, OpenAI took the investing world by storm with the release of ChatGPT. So began the AI boom, which is still going strong today.
Investors with the foresight and good fortune to invest in Nvidia before this date would be sitting on considerable gains today, provided they still owned the shares.
Before the AI-fuelled frenzy, Nvidia stock was changing hands for $162.06. Since then, it’s risen by a whopping 484% to hit $946.30 today.
In essence, a £3,033 investment would have been able to buy me 22 shares back in late 2022. That shareholding would be worth £16,413.94 now, accounting for exchange rate fluctuations and dividend payments.
A remarkable return in a mere 18 months, it must be said.
Is it a bubble?
This does raise the question of whether the rally is sustainable or might it all end in tears? Well, the company’s valuation doesn’t look cheap compared to most S&P 500 stocks.
With a price-to-earnings (P/E) ratio around 76.5, there’s a credible argument to suggest Nvidia shares are overvalued. Some even suggest we might be heading for a brutal selloff.
However, Nvidia’s no ordinary stock. That multiple has compressed a fair amount since soaring to near 250 in mid-2023, largely due to rapidly rising earnings.
Plus, there’s a reasonable counter-argument that Nvidia deserves a premium valuation. It has a wide moat and there might be potential for exponential growth in the AI systems and cloud computing sector. If so, the sky’s the limit.
It’s also worth exploring how Nvidia stacks up against competitors. AMD and Intel are commonly cited as two key threats to Nvidia’s market share. While the former has a much higher P/E multiple of 223.7, the latter’s cheaper with a ratio of 32.4.
The fact that it sits comfortably in the middle fills me with confidence that the shares aren’t wildly out of kilter relative to the sector.
I’m holding for the long term
Overall, I think Nvidia’s a great stock and one worth considering for investors who are bullish on AI’s potential.
Granted, an underwhelming set of earnings could send the share price tumbling. After all, investor confidence has come to rely heavily on the company delivering stunning performances.
Nonetheless, that’s a risk I’m prepared to take. I don’t expect the next year and a half to be as extraordinary as the past 18 months, but I do anticipate Nvidia being a market leader for the foreseeable future.
