With stocks up 25,000% over the last 10 years, it’s no surprise that Nvidia (NASDAQ:NVDA) based on Stock distribution to keep its stock price at a manageable level for small investors who may not have access to fractional shares. The most recent of these took effect on June 7 and gave investors 10 shares of Nvidia for every one they previously owned, bringing its stock price to around $126 at the time of writing this article.
The stock split did nothing to change Nvidia’s $3 trillion market cap, which represents the value of all his actions combined. However, some market participants hope that the falling stock price could make Nvidia’s shares more liquid and help it maintain its explosive uptrend. Let’s dig deeper to decide if this tech giant is still a buy.
What is Nvidia’s bull thesis?
If the generative artificial intelligence (AI) industry can be compared to the gold rush in California, Nvidia sell the picks and shovels every miner needs to dig for gold. The company’s cutting-edge graphics processing units (GPUs) are essential for running and training complex AI algorithms. And that has led to explosive growth and margins.
Nvidia’s first quarter revenue increased 262% Year after year to $26 billion, driven by sales of data center chips, such as the H100. And net profit jumped 628% to $14.88 billion.
Given this high growth rate, Nvidia stock is still reasonably valued at a reasonable price. forward price/earnings ratio (P/E) of approximately 47. For comparison, rival chip manufacturer Advanced microsystems has the same forward P/E despite only 2% sales growth in the first quarter. That said, Nvidia stock may not be as cheap as it seems on the surface.
Nvidia is not as cheap as it is looks
Over the next few years, Nvidia will face some incredibly difficult setups. Having experienced booming sales over the previous 12 months, it will be difficult for the company to continue to increase its turnover from the extremely high figures of the previous year. And that could be a big reason why the stock’s forward valuation is so low relative to growth.
Demand could become another problem. While Nvidia’s strategy for tackling the AI ​​sector protects it from competition on the consumer side of the sector, he would not be protected of an industry-wide slowdown, which could occur if its customers are unable to generate enough cash flow to justify their spending on Nvidia chips.
The long-term prospects for AI look undeniably promising. But there could be many ups and downs before it reaches its full potential, just like the others major technologies such as the Internet, electric vehicles or even blockchain.
Buy with caution
For many retail investors, Nvidia’s stock split will provide a powerful psychological incentive to buy the stock. At just $120 per share, the mammoth company now seems relatively small. And those who were previously intimidated by its four-digit share price might now be encouraged. to finally pull the trigger and hit the buy button.
But while Nvidia certainly has a bright future as the AI ​​sector grows, investors buying the stock today are late to the party. And that carries the risk of being left holding the bag if things go wrong.
Over the next few years, Nvidia will face tougher competitive conditions, which could lead to slower top-line and bottom-line growth, even as the AI ​​sector remains strong. Even though the shares still appear capable of outperforming over the long term, investors should remain aware of the significant risks they are taking by purchasing a company that has already experienced such rapid growth to date.
Historically, no stock has grown exponentially forever. And Nvidia will likely face a correction at some point. Be careful out there.
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 selected stocks 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 $740,886!*
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*.
*Stock Advisor returns June 10, 2024
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
Is Nvidia stock a buy after the 10-for-1 stock split? was originally published by The Motley Fool
