The year 2024 has started with a bang in the stock market, with optimistic sentiments and robust demand in emerging sectors like artificial intelligence (AI) propelling the markets to record highs. Amid this remarkable surge, Nvidia (NVDA) stock has gained significant attention, with its value surging by more than 20% year-to-date. The burning question on many investors’ minds is whether it’s still a wise move to buy Nvidia shares as they hover around all-time highs.
Investors are often tempted to make quick decisions, especially when stocks are performing well. However, experts advise adopting a buy-and-hold mindset for long-term wealth building. While market returns may fluctuate from year to year, historical data has consistently shown that holding onto investments for several years, even decades, has allowed investors to build generational wealth.
Nvidia’s exceptional performance can be attributed to the soaring demand for its semiconductor chips. These chips play a crucial role in training generative AI models, and the AI chip market is projected to double in the next three years. With soaring revenues and profits, Nvidia has witnessed its stock price surge by over 200% in the past year, making it the sixth most valuable company globally, boasting a market capitalization of $1.5 trillion.
Despite its seemingly high stock price, a closer look at Nvidia’s valuation suggests that it might still be an attractive investment relative to its competitors. As of now, Nvidia’s forward price-to-earnings (P/E) multiple stands at 31. In comparison, its main competitor, Advanced Micro Devices (AMD), has a forward P/E of 48. Although AMD’s prospects with the MI300X accelerators look promising, the company still lags significantly behind Nvidia in the graphics processing unit (GPU) market. Nvidia also outperforms AMD in terms of revenue and profitability.
The AI market remains in its early stages, offering long-term growth potential, and Nvidia is well-positioned to capitalize on this trend. The company’s products are integral to AI development, making it a key player in the evolving AI landscape. Consequently, some analysts believe that, despite its apparent high valuation, Nvidia may actually be undervalued, given its growth prospects and market dominance.
For those seeking to capitalize on Nvidia’s long-term growth prospects, employing a dollar-cost averaging tactic could be a prudent choice. This method entails consistently investing a fixed sum of money at regular intervals, irrespective of the stock’s current price. It serves to mitigate the effects of market volatility and enables investors to steadily accumulate shares in the company over an extended period.
While Nvidia stock is trading near all-time highs, the underlying factors driving its growth, such as robust demand for AI chips and its dominant position in the GPU market, make it an intriguing investment opportunity. Valuation analysis suggests that, relative to its competitors, Nvidia may still be undervalued. As the AI market continues to expand, Nvidia’s long-term prospects appear promising, making it a candidate for investors looking to build a position for the future.
