April has been a crazy time for the stock market. It has either been plunging or surging, depending on what President Trump says on social media. As many Foolish investors probably did, I used the recent sell-off to buy a few stocks, including Nvidia (NASDAQ:NVDA).
I invested in the chipmaker at $95 last week after its share price plunged 15% in the space of a couple of days. This meant the stock was back where it had been around 12 months earlier.
Here are three reasons I took the opportunity to pounce on Nvidia.
Valuation
The first reason was that the valuation looked more attractive than it had done for quite a while. When I invested, it was trading at just 21 times forecast earnings for this financial year.
For context, that price-to-earnings multiple was less than Nike, whose revenue and profits have been falling sharply. In contrast, Nvidia is expected to report 50% increases in both the top and bottom lines this year. Then 23%+ next year!
I should mention that Nvidia stock is higher than $95 now. As I type today (14 April), it’s set to open at $114. Therefore, the stock is up 19% in the past few days, driven higher as Trump has rowed back on many tariffs. This makes the valuation a bit more pricey.
Also, there is a risk here that the consensus earnings forecast is overly rosy, especially with all the uncertainty around tariffs and supply chains. At this stage, we basically have no idea where any of this is heading.
The AI revolution is still real
What is more certain though is that Nvidia’s key customers are set to continue making huge investments in building out artificial intelligence (AI) infrastructure this year.
For example, Amazon CEO Andy Jassy wrote in his annual letter to shareholders last week that the massive investments will be worth it. He said: “Generative AI is going to reinvent virtually every customer experience we know…if your mission is to make customers’ lives better and easier every day, and you believe every customer experience will be reinvented by AI, you’re going to invest deeply and broadly in AI.“
Amazon plans to invest upwards of $100bn this year, most of it on AI-related projects. Meanwhile, Alphabet plans to spend about $75bn, with CEO Sundar Pichai saying just last week that “the opportunity with AI is as big as it gets.”
Real-world robotics
Finally, the opportunity set is much broader than just AI-powered chatbots. Amazon’s chief executive also pointed this out in his letter.
Increasingly, you’ll see AI change the norms in coding, search, shopping, personal assistants, primary care, cancer and drug research, biology, robotics, space, financial services, neighbourhood networks—everything.
Andy Jassy.
Nvidia is systematically positioning itself to benefit from many of these mega-trends, especially robotics. And this includes not just humanoid robots, but also self-driving cars (Tesla, Waymo, etc), robotic warehouses, and more.
With humanoid robots, the opportunity lies well upstream of the finished product. Before a robot can function, there has to be a deep stack of AI infrastructure. And once it’s up and running, it will require deep inference to see, move, and interact.
The future of robotics will rely on high-performance GPUs, a domain where Nvidia still rules the roost.
