Nvidia could face some upcoming bumps in the road.
Semiconductor company Nvidia (NVDA -3.22%) has had a rough year, falling more than 50% from its high as volatility continues to shake Wall Street.
Worries over a potential recession could further pressure shares; semiconductors have traditionally been an industry of booms and busts.
It might feelwrong, but here's why leaning into the uncertainty rather than avoiding it could prove lucrative for Nvidia investors in the long run.
Short-term industry challenges?
Nvidia is the market leader in discrete graphics processing units (GPUs), which are used heavily in specific applications like gaming, cryptocurrency mining, artificial intelligence (AI), and others where high computing power is needed.
There's increasing talk about a potential recession, which could mean less consumer spending and less demand for semiconductors. There's already an ongoing bear market in cryptocurrency, which could discourage people from investing in the GPUs and other resources needed for mining.
Nvidia guided for solid fiscal 2023 second-quarter performance, calling for $8.1 billion in revenue, a 24% year-over-year increase. The fiscal 2023 first quarter ended May 1, so the second quarter will cover May through July; investors will want to pay close attention to management's guidance for the next quarter. It could provide a good look at how management expects the business to perform in the fall if the economy does slow down in the coming months.
Long-term opportunities remain intact
It's possible that a recession does come, and Nvidia's growth will slow. But this is where having a long-term time horizon can be an investor's superpower. You don't need to worry about the short-term ups and downs of the industry; you can focus on the big picture.
The long-term need for semiconductors figures to rise dramatically over time. Research firm McKinsey estimates that the global market for semiconductors could grow from $600 billion to $1 trillion by 2030.
AI could play a big part in this demand. Emerging technologies like autonomous vehicles, digital-world creation, and edge computing require computing power on site and in data centers to support the immense loads of information generated.
Nvidia's data center business ended fiscal 2022 on a $13 billion revenue pace, up from just $5 billion two years prior. The company was the world's market leader in discrete GPUs (meaning dedicated GPUs instead of ones being built into the computer processor) at 83% in 2021.
Nvidia could capture much of this industry growth and has built an extensive ecosystem to protect its market share. It's developed a full stack for AI, providing the GPU hardware, software, and developer tools for a turnkey system to create AI technologies on top of Nvidia's products.
What does all of this mean? The semiconductor market might hit the occasional bump, but Nvidia is still poised to grow over the years ahead. Semiconductors are the building blocks of technology, and the world will only need more as time goes on.
Buying into the pain
Understandably, people typically hate buying when stocks go down; it can feel painful and only worsen if the stock keeps falling after you buy. Nobody knows what a stock will do tomorrow.
But isn't a falling share price good if you're optimistic about the company's long-term direction? It's like getting something on sale; you should embrace the market's discount.
Below, you can see Nvidia's price-to-earnings ratio (P/E), which shows you how much you're paying for a piece of Nvidia's profits. People were happy to pay more than $300 for the stock, despite getting a poor value on their investment. The stock traded at a P/E of about 105 at its peak! The S&P 500 historically trades at a P/E of about 15, so Nvidia is very expensive compared to the broader market.
NVDA data by YCharts.
But now, the stock's valuation has fallen dramatically to a P/E of 42, its lowest since late 2019. Analysts expect Nvidia to grow earnings per share (EPS) by an average of 16% annually over the next three to five years, a slowdown from the 43% rate it averaged over the previous five years.
It's hard to call Nvidia a bargain with that in mind, but as the market leader in discrete GPUs, growth could accelerate during the next market cycle for semiconductors. Buying cyclical companies during moments of weakness can be a great way to position your portfolio for long-term rewards.
Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
FAQs
Nvidia's stock is attractive if the business ultimately meets future expectations. But there are numerous ways things might not play out as planned. Investors should consider these risks and invest responsibly.
Does Motley Fool recommend Nvidia? ›
The Motley Fool has positions in and recommends Nvidia.
Is it a good idea to buy Nvidia stock now? ›
Nvidia stock still boasts a strong 97 on its Composite Rating and Relative Strength Rating. The EPS Rating is an ideal 99. Nvidia also is one of the Magnificent Seven stocks that led the 2023 stock rally. Some of these tech titans are customers that rely on Nvidia's advanced chips.
What will Nvidia be worth in 5 years? ›
Assuming Nvidia does hit $184.5 billion in revenue in fiscal 2027, its top line would have increased at a compound annual rate of 45%. If the semiconductor giant's growth tapers off in the two that follow years to, let's say 25% a year, its revenue could reach $288 billion after five years.
Will Nvidia stock reach $1000? ›
Hence, based on current estimates, the chances of Nvidia's share price crossing $1,000 in the next decade appear slim. These projections, however, can change in case Nvidia makes even more dramatic advances in AI technologies in the coming years.
Is Nvidia a millionaire maker stock? ›
1. Nvidia. Nvidia (NASDAQ: NVDA) has made more than a few millionaires since a boom in AI kicked off at the start of 2023, with its stock up 745%. The company had already gained a reputation as a reliable growth stock thanks to success in gaming, consumer products, and data centers.
What's a good price to buy Nvidia stock? ›
The average price target for Nvidia is $142.74. This is based on 41 Wall Streets Analysts 12-month price targets, issued in the past 3 months. The highest analyst price target is $200.00 ,the lowest forecast is $90.00. The average price target represents 27.91% Increase from the current price of $111.59.
What is the future outlook for Nvidia stocks? ›
Stock Price Forecast
The 39 analysts with 12-month price forecasts for NVIDIA stock have an average target of 129.74, with a low estimate of 62 and a high estimate of 200. The average target predicts an increase of 10.87% from the current stock price of 117.02.
Will Nvidia stock ever go back up? ›
Analysts anticipate that Nvidia's EPS will rise to $3.17 by 2026, based on its current 40 times earnings ratio valuation. I believe this valuation is justified, considering its powerful positioning as an AI chip maker.
What if you invested $1000 in Nvidia 10 years ago? ›
10-years: A $1,000 investment in Nvidia 10 years ago has compounded at 74.5 percent annually and would be worth $261,490.87 today.
We recently published a list of the Top 10 Overbought AI Stocks in 2024. Since NVIDIA Corporation (NASDAQ:NVDA) ranks 4th on the list, it deserves a deeper look. The second half of 2024 is here and rate cuts from the Federal Reserve remain elusive, with warnings about valuations and AI-led market hype growing louder.
Is it too late to buy Nvidia? ›
If Nvidia's growth extends out five years, then absolutely it's worth it. If not, then investors could be in for a rude awakening. However, all signs point to the booming AI trend not being wrapped up in a year-and-a-half, which means it's not too late to buy Nvidia stock.
Is Nvidia still a good long term investment? ›
Financial Strength
Nvidia is in outstanding financial health. As of April 2024, the company held $31.4 billion in cash and investments, as compared with $9.7 billion in short-term and long-term debt. Semiconductor firms tend to hold large cash balances to help them navigate the cycles of the chip industry.
Will Nvidia stock split in 2024? ›
Each record holder of common stock as of the close of market on Thursday, June 6, 2024, will receive nine additional shares of common stock, to be distributed after the close of market on Friday, June 7, 2024. Trading is expected to commence on a split- adjusted basis at market open on Monday, June 10, 2024.
What is the price target for Nvidia stock in 2026? ›
The average Wall Street forecast for Nvidia's earnings in 2026 overall is $4.10 and the average price target on the stock is $126.24, according to FactSet.
What are stock recommendations for Nvidia? ›
Nvidia has a consensus rating of Strong Buy which is based on 37 buy ratings, 4 hold ratings and 0 sell ratings. What is Nvidia's price target? The average price target for Nvidia is $142.74. This is based on 41 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
What semiconductors does the Motley Fool recommend? ›
The Motley Fool has positions in and recommends ASML, Apple, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
What are the best stocks to invest in Motley Fool? ›
The Motley Fool has positions in and recommends Alphabet, Block, Meta Platforms, and Nike. The Motley Fool recommends the following options: long January 2025 $47.50 calls on Nike. The Motley Fool has a disclosure policy. Neil is an affiliate of The Motley Fool and may be compensated for promoting its services.
Who is the largest investor in Nvidia? ›
Nvidia has grown dramatically on a global scale as it positioned itself as a leader in visual computing, gaming, visualization, data centers, cryptocurrency mining, and artificial intelligence. The top individual shareholders of Nvidia are Jen-Hsun ("Jensen") Huang, Mark A. Stevens, and Tench Coxe.
