Excitement over the potential of artificial intelligence (AI) technology is driving stock markets to record levels. There are many companies shaping the AI story, but I would argue that: Nvidia (NASDAQ:NVDA) has been cast in the lead role.
The company's breakthrough advances in computing networking are impacting numerous AI applications, including machine learning, generative AI, and large-scale language models (LLM). Nvidia is now at the core of most systems powering modern AI tools, and investors are cheering the stock. Last year, the stock price soared 265%.
With Nvidia stock hovering near all-time highs it hit earlier this month, some investors may be wondering if they missed out on a chance to profit. my stance? Given all the moves Nvidia is making and its readiness for long-term growth, now is as good a time as ever to acquire stock.
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The graph below shows Nvidia's quarterly revenue, gross profit, and free cash flow over the past 10 years.
In addition to surging sales, Nvidia's dominant position in the graphics processing unit (GPU) and data center businesses gives the company unparalleled pricing power. This will help increase your profits significantly, and the improvements will be reflected directly in your bottom line.
In 2023, Nvidia increased its free cash flow six times. Naturally, this level of growth has brought Nvidia to the attention of more investors. Ultimately, this led to even more buying activity, leading to his impressive $1 trillion increase in Nvidia's market capitalization in less than two months.
Nvidia has tons of cash and isn't afraid to spend it
Fueled by its record performance in 2023, Nvidia doubled its cash position on its balance sheet to $26 billion. That's impressive, but what I find more encouraging is how Nvidia is allocating its capital.
The company has shown strong interest in AI software applications.In other words, the company is investing in a voice recognition company. Soundhound AI Data analytics startup Databricks is no different.
Although Nvidia primarily develops hardware, it has also been quietly expanding into enterprise software. The company's software services business reached an annual revenue run rate of $1 billion last year. While this is a big milestone, it's still dwarfed by the $47 billion computing networking business.
NVIDIA also participates microsoftopen AI, intelA recent round of funding for a startup called Figure AI, led by Jeff Bezos, is developing humanoid robots that it plans to commercialize in manufacturing, warehouses, and even retail settings.
Nvidia plans to benefit from this relationship in a number of ways. Specifically, we are uniquely positioned to accelerate the development of Figure AI's bots from both a hardware and software perspective.
Stock price is high, but worth the premium
The company's valuation multiple has increased slightly due to the sharp rise in Nvidia stock. The stock trades at 77 times trailing 12-month P/E. Additionally, NVIDIA's forward price-to-earnings ratio (P/E) is 37x, nearly double his for NVIDIA. S&P500.
Despite its ultra-premium valuation, I see Nvidia stock as a solid opportunity for long-term investors. At the macro level, strong long-term tailwinds are accelerating AI budgets, and we don't expect them to abate anytime soon.
Based on Nvidia's ability to market itself as both a hardware and software solution, and its potential to make smart investments, I think we're just getting started. Gradually building a position in the stock using dollar-cost averaging is a smart strategy that allows him to gain long-term upside for Nvidia and his AI space while mitigating risk.
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Adam Spatacco has held positions at Microsoft and Nvidia. The Motley Fool has a position in Microsoft and He recommends Nvidia. The Motley Fool recommends Intel and recommends the following options: Long January 2023 $57.50 call on Intel, Long January 2025 $45 call on Intel, Long January 2026 $395 call on Microsoft, Short January 2026 $405 call on Microsoft. call, and a May 2024 $47 short call. Intel. The Motley Fool has a disclosure policy.
Nvidia trading near all-time highs: Is this stock still a buy? Originally published by The Motley Fool