Follow up Nvidia (NASDAQ: NVDA) sometimes feels like a job in itself. The stock has been on a rollercoaster ride this year.
Although it is up 144.7% by 2024, that doesn’t paint the full picture. In fact, its share price has experienced significant volatility. We saw this last month, when it hit 7.4%. But would now be a good time for me to pick up some shares?
A bubble?
A big increase like Nvidia’s was always going to attract a lot of attention. From an unknown business a few years ago, the chip maker is now one of the most talked about stocks in the market. That is due to its increase of 2,628.5% in the last five years.
But with that attention comes danger. For example, there is ongoing talk of a bubble in the artificial intelligence (AI) industry. Most investors are buying into the AI hype. But some believe that investors snap up stocks only out of FOMO (fear of missing out). That opens the door for the stock price to fall if growth slows.
Breaking it down
But trying to figure out if Nvidia is really a stock to think about, I want to strip it down and start with the basics. Let’s look at its rating.
As I write, Nvidia is trading at a price-to-earnings ratio of 55.4. In context, i S&P 500 average is 23. It is important to note that technology stocks tend to trade at a low price. But still, Nvidia looks more expensive, in my opinion.
Moreover, its price-to-sale ratio (P/S) stands at 30.4. That is far and away the most expensive of the ‘Magnificent Seven’. The closest thing to Nvidia is Microsoft with a P/S of 13.4. Very cheap Amazon with a P/S of just 3.4.
Amazing performance
Based on that, Nvidia looks like it’s more expensive. But then again, what if the stock can’t keep going up?
The results of this company in recent years have been very good. It consistently beats analysts’ expectations. And we all know the potential for growth in the AI space, where Nvidia is a leader. Recently, Jensen Huang, founder and CEO, said “the next industrial revolution has begun“.
At the end of August, the company announced its latest results. During this period, revenue increased 15% from the previous quarter and 122% from the same period last year. The demand for its products from some of the biggest companies in the world continues to rise. Despite its dramatic rise, its share price may continue to rise if it continues to deliver these types of results.
Guide me well
But is there really much room for further expansion? Although its performance has been excellent, the company is now the third largest in the world by market capitalization. It has a market capitalization of $2.6trn. Only an apple and Microsoft are bigger. With that in mind, it’s tricky to see how Nvidia can increase this by a few trillion more.
Couple that with the threat of an AI bubble and the massive volatility the stock has experienced this year, and I’m not interested in taking any shares of Nvidia right now. For now, it will stay on my watch list.
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