Is Now the Time to Invest in Nvidia, or Has the Hype Peaked?

Nvidia Corps’s (NVDA.O) share price has blown up over the last 2 years, surpassing 1,000% since October 2022 and tripling in the past year. This rally briefly positioned Nvidia as the largest U.S. company by market value, reflecting investor optimism about the company’s role in the shift towards AI technology. The main reason for the huge rise in stock prices is because of their dominance in AI chip technology - Nvidia are the leading provider of chips essential for artificial intelligence applications. Their surge in stock prices have also been reflected by their increases in profit - Nvidias’s revenues are expected to double this fiscal year to $120 billion and increase to $160 billion the following year ; highlighting their future growth potential.

However, some analysts will claim that the hype train is over. This is due to Nvidia’s extremely high valuation. In addition to this, he forward price-to-earnings (PE) ratio has increased by 80% this year, making the stock more susceptible to sharp pullbacks in response to negative news. Investors face the dilemma of whether to capitalise on current gains or hold on for potential future profits. Chuck Carlson, CEO of Horizon Investment Services, warns that past performance should not drive investment decisions, although the fear of missing out can heavily influence investor behavior and I fully agree with this. Just because a company has historically performed well doesn’t necessarily mean that it will continue to perform well - take Meta as an example. From 2016 to 2021, Meta (formerly known as Facebook) saw huge growth due to its dominant social media platform and successful acquisitions like Instagram and WhatsApp along with their targeted advertisement abilities. However, since 2021, Meta’s stock has declined significantly and this is largely due to a combination of factors including increased regulatory scrutiny, changes in privacy policies (notably Apple's iOS updates), and concerns over user growth and engagement. So, as Chuck Charlson said, do NOT let past performance drive current investment decisions!

It is important to remember that there are two sides of a same coin - notable investors like Ivana Delevska of Spear Invest believe there is still significant upside potential beyond Wall Street's earnings forecasts. However, some analysts urge caution. Gil Luria from D.A. Davidson maintains a neutral rating, doubting that Nvidia’s customers will sustain the spending necessary to meet high earnings expectations. Additionally, billionaire investor Stanley Druckenmiller has reduced his stake, suggesting that while AI’s long-term potential is vast, short-term prospects might be overhyped. Competitive pressures from tech giants like Microsoft, Meta, and Alphabet could also challenge Nvidia’s market-leading position. Thus, while Nvidia’s future appears promising, the path forward is rocky with potential volatility and competition.

Personally, I would recommend long-run investing in Nvidia. I have been invested in Nvidia since the COVID-19 pandemic, where share prices were around 180$/share, as I recognised the strong position and business model that Nvidia had - I believe that in the next couple of years, Nvidia will lose a sum of its market share to its competitors however, it will remain robust and the leader in the AI industry. This is because they are so far ahead of their current competition. While competition at this moment doesn't pose a threat, in the long run (2-3 years) as competitors such as Microsoft, Meta and Alphabet may take some of Nvidia's market share. However, market volatility will still play a big role - as mentioned, Nvidia’s PE ratio has increased significantly meaning that any negative press / set backs that happens will directly result in a fall inb value of their stock - however we are confident that Nvidia will bounce back quickly from any shocks and thus will still make profit in the next coming years!

Disclaimer - I am not a financial advisor, and the information provided here should not be construed as financial advice. The content is for informational and educational purposes only and reflects my own opinions. Investing in stocks, including Nvidia, involves risks, including the potential loss of capital. It is important to conduct your own research, consider your financial situation, and consult with a qualified financial advisor before making any investment decisions.