2024 was the year that investors’ interest in Artificial Intelligence (AI)) stocks. In the UK, search Nvidia‘s (NASDAQ:NVDA) shares in particular shot through the roof.
According to eToro, a number of its British investors hold Nvidia shares more than doubled over the past year (up to 108%). So the chip maker jumped from sixth place on the list of stocks most owned by UK eToro customers, to second.
Today, only Tesla It is very popular among British customers of the trading platform.
But is the hype right? And should I buy Nvidia shares for my portfolio?
Great growth
A quick look at consumer earnings forecasts shows why the microchip maker is so popular with growth investors today.
| Fiscal 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 |
Although profits have been volatile in recent years, City thinks Nvidia will deliver steady earnings growth for at least the next three years. Some investors may be hoping that the business – which has a strong track record of beating sales and earnings forecasts recently – will top even these impressive estimates.
Market-leading graphics processing units (GPUs) are at the heart of the AI revolution. These high-powered chips enable the processing of complex algorithms and large data sets, making them essential for the training and implementation of AI systems.
This value increased revenue and net profit by 94% and 95% higher in Q3. This was yet another foreshadowing. Once again its Data Center division, which builds hardware for AI applications, stole the show. Sales here are up 112% year over year.
Since AI is still in its infancy, the view is that Nvidia has a lot of scope for growth. But the rise of machine learning isn’t the only growth channel the company is set to enjoy. Others include the growth of online gaming, the development of self-driving cars and breakthroughs in quantum computing.
Not without risk
That said, there are significant risks to Nvidia’s earnings and, by extension, its share price.
Another gainer is the potential impact of new trade prices on chip shipments. The growing tensions between China and the US are very worrying. Late last year this led Beijing to launch an investigation into Nvidia under anti-monopoly laws.
While the market leader today, Nvidia is once again facing intense competition as global rivals ramp up their AI offerings. AMD, Huawei, Intel again Qualcomm only a handful of industry giants are making big moves. Huawei is reportedly planning to challenge Nvidia’s dominance in China as trade tensions escalate.
Other major risks include supply chain issues, rising R&D costs, and the coming regulation of AI in key markets.
High growth stock
While not a risk, there is no doubt that Nvidia has significant long-term earnings potential. And on balance, I think the chipmaker deserves a lot of attention from growth investors today.
I personally already have exposure to the company through various exchange traded funds (ETF) that I hold in my portfolio. So for now I’m happy to sit on the sidelines. However, I will look to open a position in the business if it goes down in value.
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