Is Nvidia A Good Stock To Buy
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Nvidia (NVDA 1.44%) stock is on a dream run in 2023. Shares of the semiconductor giant have gained a whopping 65% so far thanks to the hype around generative artificial intelligence (AI) applications such as chatbots, which could trigger the need for thousands of graphics processing units (GPUs) -- a market that's dominated by the chipmaker.
But the stock's terrific rally has made it quite expensive from a valuation perspective. Does this mean investors should refrain from buying Nvidia stock, especially considering the conditions in the personal computer (PC) market Let's find out.
Analysts are anticipating Nvidia's earnings to increase to $4.46 per share in fiscal 2024, which would be a sizable jump over last year. Revenue is expected to increase by almost 10% to $29.6 billion. But IDC's gloomy forecast indicates that the restocking of graphics card inventory may not happen soon. That could weigh on Nvidia's gaming and professional visualization businesses, and keep the company from achieving the growth that Wall Street is expecting from it.
The headwinds in a sizable chunk of Nvidia's businesses, when combined with its rich valuation, strengthen the case against investing in the company. The semiconductor stock is trading at an eye-popping 139 times earnings and 22.5 times sales, which is surprising given the steep earnings drop it reported last year.
It is worth noting that Nvidia's current multiples are far higher than its five-year average earnings multiple of 60 and price-to-sales ratio of 17. Of course, there are new opportunities for the company in the artificial intelligence market that could accelerate its growth in the long run, but Nvidia's rich multiples make it a risky bet for investors looking to buy the stock right now.
The bottom line is that the AI opportunity could send Nvidia stock higher, giving existing investors a solid reason to hold on to this high-flying chipmaker. But those who are looking to buy this tech giant now may want to wait for a recovery in the PC market as that's going to play an important role in boosting the company's earning power.
Nvidia's (NVDA 1.44%) 2022 wasn't what any investor wanted. The stock was down 50%, and earnings fell as well. Many headwinds that affected Nvidia were out of its control, but that isn't an excuse for failure; Nvidia has experienced the same situation before and apparently hasn't learned its lesson.
Although I still hold Nvidia stock, I'm not buying any more until I can see the business trending in the right direction. This can occur through revenue growth or the stabilization of operating expenses. Until then, I'm content with holding my Nvidia shares, as there are much better values with more certain futures than Nvidia.
Meanwhile, crypto is no longer spoken about, and data centers and gaming got 18 and six mentions, respectively. The future of Nvidia seems to be all about artificial intelligence, and the market loves it. Although its Q4 featured a 21% year-over-year drop in revenue and a 58% plunge in operating profits, the stock took off the day after the report was delivered, rising 14%.
It's not quite true that Nvidia doesn't get punished by the market. It was a high-flying tech stock during the 13-year bull market that ended abruptly in November 2021. The chipmaker's stock tumbled hard over the next year, losing almost two-thirds of its value.
That may be the hope, but Nvidia is an expensive stock after its big run-up. It trades at 88 times earnings, 48 times forward earnings estimates, and 18 times sales. That's a lot of euphoria over artificial intelligence, and investors might be better off waiting for the stock to moderate to less enthusiastic valuations before buying in.
Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short January 2025 $45 puts on Intel. The Motley Fool has a disclosure policy.
When deciding whether to buy, sell, or hold a stock, investors often rely on analyst recommendations. Media reports about rating changes by these brokerage-firm-employed (or sell-side) analysts often influence a stock's price, but are they really important
Check price target & stock forecast for Nvidia here>>>The ABR suggests buying Nvidia, but making an investment decision solely on the basis of this information might not be a good idea. According to several studies, brokerage recommendations have little to no success guiding investors to choose stocks with the most potential for price appreciation.
Are you wondering why The vested interest of brokerage firms in a stock they cover often results in a strong positive bias of their analysts in rating it. Our research shows that for every "Strong Sell" recommendation, brokerage firms assign five "Strong Buy" recommendations.
This means that the interests of these institutions are not always aligned with those of retail investors, giving little insight into the direction of a stock's future price movement. It would therefore be best to use this information to validate your own analysis or a tool that has proven to be highly effective at predicting stock price movements.
Zacks Rank, our proprietary stock rating tool with an impressive externally audited track record, categorizes stocks into five groups, ranging from Zacks Rank #1 (Strong Buy) to Zacks Rank #5 (Strong Sell), and is an effective indicator of a stock's price performance in the near future. Therefore, using the ABR to validate the Zacks Rank could be an efficient way of making a profitable investment decision.
On the other hand, earnings estimate revisions are at the core of the Zacks Rank. And empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
Furthermore, the different grades of the Zacks Rank are applied proportionately across all stocks for which brokerage analysts provide earnings estimates for the current year. In other words, at all times, this tool maintains a balance among the five ranks it assigns.
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Analysts' growing pessimism over the company's earnings prospects, as indicated by strong agreement among them in revising EPS estimates lower, could be a legitimate reason for the stock to plunge in the near term.
The size of the recent change in the consensus estimate, along with three other factors related to earnings estimates, has resulted in a Zacks Rank #4 (Sell) for Nvidia. You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here >>>>
As of this writing, Nvidia stock trades for over 94 times trailing-12-month earnings and 44 times one-year forward expected earnings. Whether it's still a bear market or a new bull market has already begun (led by the semiconductor space), that kind of valuation is tough to stomach. But even more interesting is why the market suddenly has an appetite for risk again. What's going on with Nvidia, and is it really a good buy right now
Before discussing the reason Nvidia has rocked the market's early 2023 rally, let's go back in time just a few years to 2018, another rough year for the semiconductor market. There were the U.S. Federal Reserve's rate hikes (albeit nowhere close to as aggressive as those of 2022) and a downturn in chip demand, exacerbated by the U.S.-China trade war. The market overall didn't do particularly well. Nvidia stock got hit hard, but then started 2019 off hot.
Investors then realized they had gotten ahead of themselves in the first half of 2019, and Nvidia came crashing down again midway through the year -- before ultimately starting its meteoric rise headed into the pandemic. All the while, revenue was falling, and Nvidia stock traded for a high premium (though not as high as now).
So, why is Nvidia stock soaring I suspect it has a lot to do with the viral success of ChatGPT, Microsoft's ensuing investment in ChatGPT creator OpenAI, and other big tech companies' responses unveiling their own consumer-facing generative artificial intelligence (AI) services.
Make no mistake, Nvidia has incredible potential as it sells the hardware and software needed to build AI systems like ChatGPT. If you're looking for a trade that will be profitable in the next six to 12 months, Nvidia's recent run-up and steep valuation could be highly problematic. But if you're looking for a top stock to bet on the rise of generative AI services over the next five to 10 years, now could still be a good time to buy. Just remember to tread lightly because the stock price could get turbulent -- especially in the first half of 2023.
After its steep decline this year, Nvidia's stock is much more attractively priced -- but arguably still not cheap. Its shares trade for about 41 times analysts' earnings estimates for fiscal 2023. That figure drops to less than 32 times Wall Street's profit projections for Nvidia in fiscal 2024. For context, analysts expect Nvidia to grow its earnings per share by more than 23% annually over the next five years, according to Yahoo! Finance.
Investors who want to capture some of the chip leader's awesome growth potential could begin building a position today -- and seek to add to it if Nvidia's stock price pulls back further in the weeks and months ahead.
During these two years, there will be four purchase periods. Your contributions over each period will purchase our shares at a 15 percent discount. The discount will be applied to the lower of either the price of NVIDIA stock set at the beginning of your offering period or its price at the end of the purchase period. 59ce067264