2024 was the year in which investor interest in artificial intelligence (AI) stocks ignited. In the UK, demand for Nvidia‘s (NASDAQ:NVDA) shares in particular shot through the roof.
According to eToro, the number of its British investors holding Nvidia shares more than doubled over the course of last year (up 108%). And so the chipmaker leapt from sixth place on the list of most-widely-held stocks by eToro’s UK customers, to second.
Today, only Tesla is more popular among the trading platform’s British customers.
But is the hype justified? And should I buy Nvidia shares for my own portfolio?
Great growth
A quick look at brokers’ earnings forecasts show why the microchip manufacturer is so popular with growth investors today.
| Financial Year Ending January | Predicted earnings per share | Annual growth | Price-to-earnings (P/E) ratio |
|---|---|---|---|
| 2025 | 295.01 US cents | 145% | 46.6 times |
| 2026 | 441.92 US cents | 50% | 31.2 times |
| 2027 | 550.41 US cents | 25% | 25 times |
Though profits have been volatile in recent years, the City thinks Nvidia will deliver sustained earnings growth over the next three years at least. Some investors may be hopeful that the business — which has a strong record of beating sales and earnings forecasts more recently — will top even these impressive estimates.
The company’s market-leading graphic processing units (GPUs) are a cornerstone of the AI revolution. These high-power chips enable the processing of complex algorithms and large datasets, making them essential for the training and deployment of AI systems.
This indispensability drove revenues and gross profit 94% and 95% higher in Q3. This was yet another forecast beat. Once again its Data Center division, which builds hardware for AI applications, stole the show. Sales here leapt 112% year on year.
With AI still in its infancy, the theory is that Nvidia has considerable scope to grow. But the rise of machine thinking isn’t the only growth channel the company is set to enjoy. Others include the growth of online gaming, advancements in self-driving vehicles and breakthroughs in quantum computing.
Not without risk
Having said that, there are significant risks to Nvidia’s earnings and, by extension, its share price.
One that’s gaining traction is the potential impact of new trade tariffs on chip exports. Rising tensions between China and the US are particularly concerning. Late last year this led Beijing to launch an investigation into Nvidia under anti-monopoly laws.
While it’s the market leader today, Nvidia also faces fiercer competition as global rivals ramp up their own AI offerings. AMD, Huawei, Intel and Qualcomm are just a handful of industry giants making big moves. Huawei is reportedly planning to challenge Nvidia’s dominance in China as trade friction heats up.
Other major dangers include supply chain problems, soaring R&D costs, and future AI regulation in key markets.
A top growth stock
While it’s not without risk, there’s no doubt that Nvidia has significant long-term earnings potential. And on balance, I think the chipmaker’s worth serious attention from growth investors today.
I myself already have exposure to the company through various exchange-traded funds (ETFs) I hold in my portfolio. So for the time being I’m happy to sit on the sidelines. However, I’ll look at opening a position in the business if it falls in value.
This story originally appeared on Motley Fool
