Nvidia Stock: Is It Too Late to Invest in the AI Chip Giant?

Think It's Too Late to Buy Nvidia Stock? Here's the Biggest Reason Why There's Still Time | The Motley Fool

Nvidia's post-earnings stumble could be a buying opportunity. Nvidia (NVDA 1.51%) has become the market's most visible and influential battleground stock. The artificial intelligence (AI) leader posted second-quarter results after the market closed on Aug. 28 and posted performance that crushed Wall Street's targets. The business recorded non-GAAP (adjusted) earnings per share of $0.68 on sales of $30 billion in the period, cruising past the average analyst estimate for per-share earnings of $0.64 on revenue of $28.7 billion. But despite substantial sales and earnings beats in the quarter, Nvidia stock still lost ground following the report. With the company's share price losing ground on the heels of a blockbuster Q2 report, it's not unreasonable to wonder whether the red-hot AI leader may have finally hit its valuation peak. While the stock could continue to see some post-earnings valuation volatility, there's a good reason to think the stock can bounce back and continue climbing higher. Thanks to AI-driven demand for the company's most advanced processors, Nvidia has been posting fantastic gross margins. The chart below tracks the business' gross margin over a three-year period concluding at the first quarter of the company's 2025 fiscal year, which ended April 28, 2024. With its recent report, Nvidia showed that it had recorded a gross margin of 75.1% in Q2 and also guided for a margin of 74.4% in fiscal Q3. For the full-year period, the company expects its gross margin percentage to be in the mid-70s. Based on the company's recent results and forecast, it looks like prices for its AI processors are coming down -- but not by much. Nvidia's current top-of-the-line graphics processing units (GPUs) and accelerators are still showing very strong pricing power, and large tech companies are still buying hardware to improve their AI infrastructure. Selling prices for the company's current GPUs for advanced data center applications will likely continue to decline, but the AI frontrunner is gearing up to release its next major chip platform. Nvidia has said that manufacturing of its next-generation Blackwell chips will ramp up in the fourth quarter, and it appears that the new processors are poised for release late in 2024 or early in 2025. With the company's current processors demonstrating resilient pricing power and a major leap forward in GPU technology on the horizon, the bull case for the stock remains intact.

Is It Too Late to Buy Nvidia Stock? | The Motley Fool

Nvidia pulled back despite exceeding previous elevated expectations. When it comes to stocks where investors appear to have taken an interest too late, most will probably think of Nvidia (NVDA 1.51%). The stock has surged higher by more than 950% since late 2022, when it emerged as the dominant company for AI chips. Moreover, its fiscal second-quarter revenue and earnings exceeded expectations, a result likely to keep the semiconductor stock's valuation in the stratosphere. Nonetheless, the growth of the subsector it spearheaded, AI chips, is massive. Thus, investors should take a closer look at Nvidia to see if they are truly too late to capitalize on Nvidia's remaining growth potential. Much like previous quarters, Nvidia delivered impressive results for the second quarter of fiscal 2025 (ended July 28). The company continues to benefit from solid demand for its Hopper chip and has begun shipping samples of its highly anticipated Blackwell chip to its customers and partners. Given that demand, it may not surprise investors that Allied Market Research forecasts a compound annual growth rate (CAGR) of 38% for the chip market through 2032. This is far above the 6% CAGR Allied predicts for the overall semiconductor market through 2031. Not surprisingly, Nvidia's results far exceed that forecast, as revenue came in at $30 billion. This was a 122% increase from year-ago levels and significantly above the $28 billion it forecast just three months ago. Furthermore, $26 billion of that revenue came from its data center segment, which includes its AI chips, and that climbed 154% year over year. Also, net income for fiscal Q2 was nearly $17 billion, rising 168% from the same quarter last year as Nvidia limited the increases in the cost of revenue and operating expenses. Additionally, the company now anticipates $32.5 billion in revenue for fiscal Q3, indicating its massive growth will continue. Nonetheless, despite the strong earnings report, the reaction of the market will likely make new investors nervous. The strength of the numbers was not enough to satisfy investors, and the stock fell following the news. Moreover, even with its huge growth, some of the valuation metrics may make investors reluctant to bid the stock higher, regardless of its circumstances. This is not because of the P/E ratio, which, at 72, is surprisingly low given the stock's rapid profit growth. However, its price-to-sales (P/S) ratio of 38 far exceeds other AI chip companies such as AMD at 10 times sales and Qualcomm at a 5 P/S ratio. The contrast is starker when comparing the price-to-book value ratios. AMD and Qualcomm sell at 4 times and 8 times book value, respectively. This is a small fraction of Nvidia's price-to-book value ratio of 61! Considering such a valuation, one can see why investors may hesitate to bid Nvidia higher in the near term despite its incredible performance. Additionally, this has occurred amid considerable share buybacks. Nvidia spent $15 billion on share repurchases in the first half of fiscal 2025. The company has also pledged an additional $50 billion for further share buybacks on top of the $7.5 billion remaining from the previous authorization. Reducing the number of outstanding shares should mitigate the impact of any downtrends in the stock. Hence, the fact that investors have turned on the stock despite this bullish news may speak to how overvalued Nvidia stock has become. Given the state of the stock, investors should assume they are too late, at least for now. Admittedly, the 38% CAGR in the AI chip market makes it likely Nvidia will benefit from robust growth for several years to come. If the stock goes into a bear market, investors should start dollar-cost averaging. Unfortunately, at its current price, it is priced for perfection or possibly priced beyond perfection when taking the fiscal Q2 earnings report into account. Ultimately, it is quite difficult to justify a price-to-book value ratio of 61, even for a "perfect" stock. With that in mind, investors should keep Nvidia -- along with its price-to-book value ratio -- on a watch list and hold off buying until the valuation comes down significantly from these lofty levels.

4 Reasons to Buy Nvidia Stock Hand Over Fist After Its Latest Pullback | The Motley Fool

Earlier this week, I predicted the stock would soar after its fiscal 2025 second-quarter update on Aug. 28 for three key reasons: blowout numbers, stellar guidance, and clarity on its Blackwell platform launch. Nvidia indeed reported blowout Q2 numbers. It provided stellar guidance. The company also gave more information about when it would begin shipping Blackwell. However, Nvidia's shares didn't soar despite all of this good news. Instead, the stock tumbled 6% lower the day after its Q2 update. Should investors buy Nvidia stock hand over fist after its latest pullback? Here are four reasons why the answer could be a resounding "yes." Nvidia CFO Colette Kress said in the company's Q2 earnings call that the Blackwell platform will ramp up production beginning in the fourth quarter of fiscal 2025. She added that Nvidia expects Blackwell will generate "several billion dollars" of revenue in Q4. Kress mentioned that demand exceeds supply, a trend that should extend into next year. CEO Jensen Huang clarified that Nvidia will begin shipping Blackwell in Q4. He touted Blackwell's capabilities and maintained that it's "going to be a complete game-changer for the industry." Huang emphasized that Blackwell isn't just a graphics processing unit (GPU); it's "an AI infrastructure platform" that offers between 3 times and 5 times more AI throughput than Nvidia's Hopper platform. Some investors might have been disappointed that Nvidia missed its "whisper" earnings number in Q2 despite beating the official Wall Street estimates. However, I suspect the release of Blackwell will soon wipe away those misgivings. It's important to keep in mind why Blackwell and forthcoming innovations are so critical to Nvidia's success. A massive migration of data centers from CPUs to GPUs is underway. As Huang said in the Q2 call, "$1 trillion worth of data centers in a few years will be all accelerated computing. In the past, no GPUs are in data centers, just CPUs. In the future, every single data center will have GPUs." Don't look at this as an opportunity for Nvidia that's well into the future, though. Huang noted that the company expects its data-center business will grow "quite significantly next year." One reason why data centers need powerful GPUs is that the next generation of generative AI is at hand. According to Huang, "The world of human-engineered software is moving to generative AI software." He noted that Nvidia is already using generative AI coding "quite extensively." But while the use of generative AI in coding, chatbots, and image generation is accelerating, Huang argues that's "just the tip of the iceberg." He mentioned several other areas that generative AI is transforming, including ad targeting, large-scale recommender systems, robotics, and search systems. Importantly, training next-generation AI models will require 10 times to 20 times more computing power. This creates a huge growth market for Nvidia, one the company is capitalizing on. There's at least one other reason to buy Nvidia stock after the recent pullback: The company plans to buy its shares hand over fist. Nvidia's board of directors approved a $50 billion stock-buyback authorization. This comes on top of the $7.5 billion remaining on the existing share-repurchase authorization. Sure, the total amount of authorized-stock buybacks represents less than 2% of Nvidia's market cap. However, the increased authorization underscores that the board believes in the company's future growth prospects. With Nvidia prepared to bet another $50 billion on itself, it could give investors putting up much less money to buy the stock with more confidence in their decision.