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Nvidia (NASDAQ: NVDA) shares have soared 848% over five years, making investors fortunes. The last 12 months have been less spectacular, with the stock up a modest 20%. So is the fun over?
Nvidia reports second-quarter results after the US market closes on Wednesday (26 August), and investors will be looking for evidence that its extraordinary growth story still has further to run.
I hold the shares, so I’ll be looking too. I’ve also been reading all the shock-horror stuff about the AI bubble. So I asked ChatGPT if the Nvidia share price is ‘cruising for a bruising’ on Wednesday, or can it once again rise above the rest?
This is a bit like asking AI to mark its own homework. So as ever, I’ll be approaching the chatbot’s musings with caution.
Can this S&P 500 stock do it again?
The chatbot said there’s plenty of evidence that Nvidia can power on: “It isn’t some speculative AI hopeful with no profits to show for its ambitions. It’s making colossal amounts of money from supplying the chips that power the AI revolution”.
Q1 revenue jumped 85% year-on-year to $81.6bn. That makes me wonder why the shares aren’t doing better but, of course, I know the answer. Expectations are sky high. Wall Street now forecasts Q2 revenue of around $92bn, almost double last year’s $46.7bn.
Nvidia doesn’t just need to produce brilliant numbers, it needs to produce numbers that are better than the outstanding ones investors already expect.
What should we look for?
Investors will be watching Nvidia’s data centre business and, in particular, demand for its latest Blackwell chips. They’ll also want to know how quickly customers are moving towards its next-generation Vera Rubin platform.
Again, ChatGPT is bullish: “Microsoft, Amazon, Alphabet and Meta are spending vast sums building data centres, and Nvidia supplies much of the hardware they need”.
Nvidia is also expanding into networking, CPUs and complete AI systems rather than simply selling individual chips, so ChatGPT also said: “That’s why I’m not convinced the AI bubble argument automatically means Nvidia is a bubble. It’s making real money”.
The big question is this. What if AI investment slows, or the huge sums being poured into AI don’t generate enough profits to justify them? Investors are also concerned about competition from AMD and Broadcom, and customers developing their own chips.
How low could they go?
Today, Nvidia shares trade at just under $215. Could they fall below $200? ChatGPT said: “Absolutely. But I wouldn’t bet on it”.
Like me, it thinks the price-to-earnings ratio of 33 isn’t outrageous for a company that’s growing this quickly. I’d argue the recent slowdown might even be an opportunity for investors who missed the boat.
Also, it’s all too easy to bang on about bubbles, as so many are, but if you spend all your life worrying about the next one, you’ll never invest and be poorer as a result.
I think Nvidia’s still worth considering, but with a crazy market-cap of $5.2trn, there’s a limit to its potential size and success. We’ll learn more on Wednesday…
Should you invest £5,000 in Nvidia right now?
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Harvey Jones owns shares in Nvidia.
This story originally appeared on Motley Fool
