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Nvidia (NASDAQ: NVDA) shares aren’t the growth monster they once were. The S&P 500 chip maker’s stock is up an astonishing 869% over five years. Yet over the last 12 months, it’s climbed a modest 21%.
At around $212 today, the shares are 10% below their 52-week high of $236.54. That’s quite a change for a stock that seemed unstoppable not so long ago. But hardly surprising.
Nvidia has a market cap of around $5.1trn, making it the biggest company in the world. Given its sheer size, it’s now playing to different rules.
Just look at those profits though
Any investor approaching this S&P 500 stock today needs to temper their expectations. But they shouldn’t be too cynical either. This isn’t the 1990s dotcom boom, and Nvidia isn’t some great technology hope with no profits to back it up. It’s making an absolute fortune.
Second-quarter revenue hit $96.2bn, up 106% year on year. Data centre revenue more than doubled to $89bn, while net income soared 126% to $59.7bn. Gross margins were an extraordinary 75%. Let’s put that into perspective. Tesco works to margins of 3% to 4%.
Nvidia is forecasting another 70% sales growth for full-year 2026, but many are wary as we all fret over the implications of artificial intelligence. It’s either the next great leap forward for humanity, or the death of us, depending on who you listen to.
One thing is certain today. AI is driving massive demand for chips, networking and computing platforms, and Nvidia has a huge opportunity in its next generation of Vera Rubin products. But what are investors paying for that potential growth?
Nvidia isn’t cheap, but its price-to-earnings ratio of 26.8 isn’t stupidly expensive either. That’s down from 43 times, based on last year’s earnings. As profits have exploded, the valuation has fallen.
Can the AI dream implode?
Hyperscalers are pouring hundreds of billions into AI infrastructure, but we still don’t know if they’ll generate sufficient returns to justify that. Rising inflation and interest rates are another threat, as that will increase the cost of capital, and downgrade the real terms value of future tech profits.
Plus there’s the trade war with China, questions over whether Nvidia customers can develop their own chips, and concerns over Nvidia’s circular financing strategy. The backlash against AI and resource-hungry data centres are another worry. We’re in a world of uncertainty.
If the shares idle, investors won’t get much compensation from the dividend, given the tiny 0.5% yield. Nvidia is returning huge sums to shareholders, but mostly through share buybacks. It returned $26bn in the latest quarter alone.
Anyone buying today must accept that this is no longer the Nvidia of five years ago. The shares have to deliver spectacular growth, just to stand still. I’ll hold what I’ve got, but for my next purchase, I’ll be targeting the FTSE 100. I can see some UK growth stocks that are really worth screaming about today.
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Harvey Jones owns shares in Nvidia.
This story originally appeared on Motley Fool
