Nvidia (NASDAQ:NVDA) quickly became a stock market darling when ChatGPT burst onto the scene in late 2022. About a year ago, though, investors began to lose interest in the AI juggernaut and its share price lost momentum.
Recently, however, it’s found a new lease of life, jumping around 19% in a month. This would have turned a £5k investment into almost £6k, which is a cracking result in such a short time.
Over 10 years, Nvidia is up a mind-boggling 14,453%! But with the chipmaker now sporting a colossal $5.4trn market cap, and already the world’s largest company, can the stock keep going up?
Inflection point
Looking at the firm’s recent second quarter, more gains look very likely to me. This is because Nvidia absolutely knocked the ball out of the park (yet again), while guiding for even more incredible growth.
Second-quarter revenue more than doubled year on year to $96.2bn, easily beating Wall Street’s expectation for $91.9bn. The vast majority of this came from the Data Centre unit, where revenue soared 117%.
Now, I’m not sure exactly if this is a record for an already massive company, but it’s truly insane growth. For context, exactly five years ago, second-quarter revenue was $6.5bn. Now it’s moving over $100bn!
Visionary CEO Jensen Huang said: “AI has reached its inflection point. It’s doing useful work. Its tokens are productive and profitable…The AI infrastructure buildout is at full steam.”
You can say that again. Net profit skyrocketed 126% to $59.7bn.
This is an extraordinary company.
Is $1trn in sight?
How long can it go on though? Well, seemingly quite a bit longer. Nvidia guided for third-quarter revenue of $108bn, good for 131% year-on-year growth, and again higher than Wall Street had pencilled in ($104bn).
When we turn to the forecasts, revenue next year (FY28) is expected to be $665bn, then $853bn in FY29. So Nvidia now looks on course to top $1trn in annual revenue by 2030!
Normally, when a company is growing this fast, you would be expected to pay some skyscraper valuation multiple. However, the stock is trading at 15 times Nvidia’s FY28’s forecast earnings. Then falling to just 11.8 by FY29.
As such, the stock looks too cheap to me, at least on this metric. Nvidia might already be a colossus, but the figures back up this valuation.
Indeed, in my view, the market cap should already be nearer $7trn or even $8trn.
Risks to watch
Of course, this is good news for investors who are interested in the stock. Because it suggests it’s not too late to consider investing today.
That said, there are some risks here. One is rising competition from Google and Amazon, who are now making their own AI chips. Jensen Huang isn’t worried about this, arguing that Nvidia is an “entire AI factory platform that spans the entire AI lifecycle“. Still, it’s worth keeping an eye on.
Another risk worth flagging is the possibility that Nvidia’s industry-leading 75% gross margins take a hit from the ongoing memory shortage. Third-quarter gross margin is expected to be 74%.
Weighing everything up though, the stock still looks great value to me, making it worthy of consideration.
Should you invest £5,000 in Nvidia right now?
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Ben McPoland owns shares in Nvidia.
This story originally appeared on Motley Fool
