Nvidia (NVDA -1.77%) This is an example of the life-changing potential of stock market investing. If you bought $10,000 worth of stock 10 years ago, you would have earned an impressive $2,947,300 today, a return of more than 29,000%. The company has generated so much wealth that many of its employees (often supplemented with stock options) have become multi-millionaires.
But new investors expecting such huge profits will understandably be a little nervous about arriving at the party too late. After all, no one wants to be left holding a bag. let’s Explore the pros and cons of Nvidia stock and decide if this legendary chipmaker is the one for you. can still be configured You will be fine for the rest of your life.
Growth is still impressive, but slowing
Nvidia’s third quarter results were once again abysmal. Sales rose 94% year-on-year to $35.1 billion, driven by strong performance in the data center division, which sells advanced technology. graphics processing unit (GPU) Run and train artificial intelligence (AI) algorithms. The company boasts an incredible gross profit margin of almost 75% (which suggests that the company’s economic moat is strong).
That said, there are signs that growth is starting to slow. Last year (fiscal year 2024), Nvidia’s third quarter revenue increased 206% year over year. Investors should expect the economic slowdown to continue as the company faces increasingly difficult year-over-year comparisons.
The cracks have not yet appeared, but it’s also unclear how long Nvidia can maintain its sky-high profit margins.
The company continues to do well economic moat Software solutions like CUDA make it easier (and sometimes cheaper) to develop programs on Nvidia chips compared to alternative chips. But as the market becomes increasingly flooded with AI-enabled hardware, customers are likely to stick with their existing GPUs instead of spending huge sums to upgrade to the latest models. every year.
This is still a highly speculative industry
Wall Street remains highly optimistic about the generative AI industry, with Bloomberg analysts predicting it will expand rapidly. compound annual growth rate (CAGR) of 42% to reach $1.3 trillion by 2032. Against this background, Nvidia’s chip business a lot There’s more space to run. However, this projection causes the following: big Assumptions not guaranteed.
Analysts believe the AI industry will evolve from its current direction towards Instead of training and inference hardware, consumer software application. However, this transition has not gone so smoothly.
Image source: Getty Images.
the current, Most of Nvidia’s major customers are so-called “hyperscalers.” essentially Lend the computing power of your GPUs to startups and other AI clients. While this intermediary role can be very profitable, consumer software often isn’t. ChatGPT maker OpenAI is expected to lose $5 billion this year on revenue of just $5 billion. Competition from numerous open source alternatives like Elon Musk’s Grok could also make sustainable monetization an uphill battle.
For Nvidia, the issue remains abstract. Key customer preferences meta platform I will continue to work on purchasing GPUs. Social media giant spends $38 billion Capital investment But it’s unclear how long shareholders will tolerate speculative data center construction before pushing back.
Is Nvidia stock still a winner?
Nvidia’s situation is complicated, but the good news is that its valuation appears to fully factor in concerns about growth and sustainability in the AI industry. At a forward price/earnings ratio of 34 times, the stock is cheap compared to the company’s massive growth rate.
Nvidia stock will likely continue demonstrate superior performance of S&P500 For the near future. but Investors probably shouldn’t expect a repeat of life-changing growth. Saw Over the past 10 years.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Will Ebifang has no position in any stocks mentioned. The Motley Fool has a position in and recommends Meta Platforms and Nvidia. The Motley Fool has a disclosure policy.
