Two years ago, in mid-December 2022, Nvidia (NASDAQ:NVDA) stock price was $18. At the close of December 13, 2024, the price rose to $134.
It’s a 7 bagger, and then some. And the £5,000 you invested just two years ago would have turned into more than £37,000 today. Alternatively, your £20,000 ISA allowance could be worth £149,000.
The question is, what happens next? Will the boom continue or will the recession continue? There are arguments for both positions, but I think there is some truth to both claims.
All the big tech companies (and many others) are working on developing artificial intelligence (AI) as if there’s no tomorrow.
Remembering the dot-com boom of 1999-2000 is disturbing. Yes, the Internet will obviously be revolutionary. However, many people at that time could not understand where the real profits would come from.
And seeing both the S&P 500 and Nasdaq soar makes my nerves tingle even more.
A few months ago, InvestorPlace’s Jeff Remsburg said: Often, that’s exactly when the market starts to shift in another direction. ”
And just a few weeks ago, the European Central Bank warned of a potential AI stock bubble, which could burst if bullish expectations are not met.
Some current predictions are that AI revenues will exceed $1.3 trillion by 2032, up from a modest $128 billion expected in 2024. That said, this is quite a journey, and I wonder how much of it is based on speculation.
Still, we don’t know how well major companies will be able to turn large AI investments into profits, but at least Nvidia is making big profits right now. It has to be the ultimate “pick and drop” investment that will feed a seemingly unstoppable AI gold rush.
However, the reaction to Nvidia’s latest earnings report raises some concerns. In the third quarter, the company posted a 94% year-over-year increase in revenue and a 111% increase in earnings per share.
Both sales and profits exceeded expectations, but the stock price declined. Perhaps the company did not quite exceed expectations.
The next thing I look at is Nvidia’s stock valuation. According to forecasts, the price-to-earnings ratio (P/E) is 47 times this year, falling to 25 times by 2026.
By Nasdaq standards, this looks cheap. For example, Tesla’s P/E ratio this year is 210, which drops to 116 in 2026. Nvidia’s P/E valuation is only about the same as Amazon’s, so it’s not really a “tomorrow-ready” company.
Purely based on this fundamental valuation measure, I think NVIDIA looks potentially cheap for one of the world’s leading tech stocks, which has already generated significant profits.
the story continues
