Is Nvidia stock a buy after surging 150% in 2024?
Or will Nvidia crash 90%…
Nvidia stock continues to impress investors.
NVDA surged 150% in 2024 already.
And has gained an impressive 1,700% since I named Nvidia the best stock to own for the next 5 year back in 2018.
Given all this, the question on every investor’s mind is how much higher can NVDA stock go?
Is Nvidia still a buy or will Nvidia crash 90%…
Have you seen this chart before:
It compares Nvidia stock today to Cisco during the Dot-com bubble.
Cisco Systems connected the world to the internet. Its switches and routers allowed computers around the world to easily communicate with each other.
As businesses rushed to build websites in the ’90s, they tore the hinges off the door to buy Cisco’s products.
Its stock shot up 100,000% in 10 years — turning every $1,000 invested into a million dollars.
Unfortunately, once the dot-com bubble burst, Cisco crashed 90%. Many investors believe Nvidia is about to suffer a similar fate.
There’s just one problem… the AI bubble is far from the top.
Fact is, the AI revolution is just beginning…
Don’t forget that ChatGPT isn’t even two years old.
Big tech firms are locked in an AI arms race and they’re spending insane amounts of money on it.
We (RiskHedge) ran the numbers and found this is one of the largest — if not the largest — infrastructure buildouts in history.
The so-called hyperscallers — Microsoft (MSFT), Alphabet (GOOG), Amazon (AMZN), and Meta Platforms (META) — spent $52 billion in 2Q of 2024 on AI, up +54% from just a year ago. And they plan to spend even more in the future:
And those are just four companies…
Elon Musk’s AI startup xAI just built the biggest AI chip cluster ever. He connected together 100,000 Nvidia H100 AI chips, tripling the previous record.
And guess which AI stock gets to profit from all the AI infrastructure spending? Nvidia. The fundamentals couldn’t be stronger for the AI chip maker.
Is Nvidia stock overvalued or undervalued?
Most investors think Nvidia is way overvalued. But that’s hardly the case…
Yes, it’s trading at 36.5X forward earnings, which is certainly not cheap.
But realize that Nvidia is trading on the cheaper side of its forward-earnings valuation in the last 3 years:
Source: Koyfin
Because although its stock price has surged, its expected profits have surged even faster.
Nvidia also trades at a cheaper valuation than its closest competitors — AMD (AMD) and Intel (INTC) — even though it’s a much better stock.
Source: Koyfin
And remember Cisco? At the top of the Dot-com bubble, it was trading at a crazy forward PE of 131. That’s four times more expensive than Nvidia is today.
Bottom line: Nvidia is fairly valued.
When to sell Nvidia stock?
I remain bullish on NVDA. It’s sitting at the center of the artificial intelligence revolution.
But eventually, there will be a time to exit this investment.
Here’s the number one signal I’m looking for that will tell me when to sell Nvidia: The “IPO curse.”
I’m struck by how many times the leading company in a hot sector has gone public and marked “the top…”
- The AOL-Time Warner merger in 2000 — still the largest ever — culminated in the dot-com bust.
- The Blackstone (BX) IPO in 2007 coincided with the top for financial markets and preceded the Great Recession.
- Glencore’s (GLNCY) 2011 listing marked the peak in the commodity super-cycle.
- Coinbase’s (COIN) IPO looks like it marked a top for crypto.
We’re at least a year away from a high-profile AI IPO. This tells me the AI trend, and NVDA stock with it, has more room to run.
Conclusion: Nvidia stock remains a buy in 2024.
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— Stephen McBride, Chief Analyst at RiskHedge
