3 Reasons to Buy Nvidia Stock Before June 26

3 Reasons to Buy Nvidia Stock Before June 26

Artificial Intelligence (AI) is a truly revolutionary technology that has captured the imagination of investors like few things before. It’s a double-edged sword, although the technology is definitely here to stay. If we learned anything from 2000, it’s that too much hype around new technologies without the economic data to support sky-high valuations is dangerous territory.

I don’t want to draw too close a parallel here – there are many reasons to believe that this is not the second round of the dotcom bubble – but it is always prudent to maintain a healthy skepticism during a period of expansion. All eyes – skeptics and believers alike – are on NvidiaIt is (NASDAQ:NVDA) next annual meeting of shareholders.

On June 26, 2024, the figurehead of the AI ​​revolution will hold a meeting, discuss strategy, and vote on action steps such as board approval. Typically, annual general meetings don’t shake things up as much as earnings reports, but it’s still an important event that could help shed light on what the future holds for Nvidia and to the market as a whole.

So, as the meeting approaches, is now a good time to jump aboard the Nvidia train? Here are three reasons why the stock still looks strong.

1. Nvidia has plenty of money to play with

As the company has become a celebrity and proven how lucrative its business is, its competitors want a share of those profits. The threat of a AMD Or Intel catching up and eating into Nvidia’s approximately 80% market share is real and should be taken seriously. However, Nvidia has significant means to defend itself through constant innovation.

In technology, having the best product is very useful. AMD and Intel need to produce a product comparable to Nvidia’s if they hope to reduce their market share. It takes money – a lot of money. AMD spent $1.5 billion on research and development (R&D) last quarter, while Nvidia spent $2.7 billion. Don’t forget that Nvidia is already in pole position; it has the best technology on the market and its expenses still outstrip AMD’s by almost two to one.

Intel, on the other hand, spends more than both, at $4.4 billion last quarter. The problem is that these expenses put Intel in the red. How long can he last?

Take a look at this chart showing the free cash flow (FCF) of these companies. FCF is a company’s income after subtracting operating expenses and capital expenditures (the money a company spends to grow) and it indicates how much leeway a company has if it wants to, for example example, increase its R&D spending.

3 Reasons to Buy Nvidia Stock Before June 26

NVDA Free Cash Flow Chart

2. The market as a whole is growing rapidly

So if we accept that Nvidia has the resources to defend against its major competitors, we can assume that Nvidia can maintain or increase its market share. There are certainly other factors, but it’s not an unreasonable assumption.

Statista.com projects a compound annual growth rate (CAGR) for the AI ​​market as a whole of around 28.5% through 2030. This is a very rapid growth rate, although slower than the breakneck speed at which the company has grown recently. Still, that would be an incredible growth rate to maintain.

This is an estimate for the entire market – not just semiconductors, which are Nvidia’s bread and butter – so it is a very rough indicator. The semiconductor segment could have a lower CAGR rate than this. However, this brings me to my next point.

3. Nvidia is not sitting on its laurels: it is expanding its sources of revenue

There’s no doubt that what’s driven Nvidia’s massive success of late is selling its powerful AI-enabling chips, but the company sees a future beyond that. Nvidia is trying to create a complete AI ecosystem. It partners with companies like Dell to deliver AI computing solutions at scale, on-premises. It builds end-to-end technologies and platforms designed for autonomous vehicles, humanoid robotics and drug research. There’s more, but I’ll stop here. The fact is that Nvidia intends to position itself at the very center of all things AI, as a star around which other companies revolve, rather than just another link in the chain.

Should you invest $1,000 in Nvidia right now?

Before buying Nvidia stock, consider this:

THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now…and Nvidia wasn’t one of them. The 10 stocks selected could produce monster returns in the years to come.

Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $775,568!*

Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.

See the 10 values ​​»

*Stock Advisor returns June 10, 2024

Johnny Rice has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Mad Motley has a disclosure policy.

3 reasons to buy Nvidia stock before June 26 was originally published by The Motley Fool

Source Reference

Latest stories