Analysis of Nvidia
(ticker: NVDA)
Continued…
Reasonableness of the stock price
Is the company’s stock price overvalued today? To answer this, we need to compare the company’s stock price with the annual earnings the company brings its investors every year.
The company’s stock is currently trading at $141.25. In 2024, the company’s earnings per share were $1.21. This means that the stock price is 116.74 times greater than the annual earnings per share (based on last year’s data). In other words, if we ignore the fact that earnings are constantly growing, it would take 116.74 years for an investor to recoup, in the form of earnings, what they spend today to buy the stock. Is that a lot or a little?
For the average company in the entire U.S. stock market, this figure currently stands at 87.7 years. For companies in the S&P 500 index, this figure is 25.1 years.
We believe this stock is overvalued, even despite the company’s strong earnings growth.
Analyst opinions
Reasons to buy:
- Nvidia’s GPUs offer industry-leading parallel processing, which has historically been essential for PC gaming applications but has also expanded into cryptocurrency mining, artificial intelligence, and potentially future applications.
- Nvidia’s data center GPUs and the CUDA software platform have made the company the dominant provider of tools for training artificial intelligence models, and this use case is expected to grow exponentially in the coming years.
- The company has a first-mover advantage in the autonomous driving market, which could lead to widespread adoption of its Drive PX autonomous driving platform.
Reasons NOT to buy:
- Today, Nvidia is the leading supplier of chips for artificial intelligence, but other influential chipmakers and tech giants are focused on developing their own chips.
- Although CUDA is currently the leader in software and tools for training artificial intelligence, leading cloud technology providers will likely prefer to see more competition in this area and may switch to alternative open-source tools if they become available.
- Nvidia’s gaming GPU business often experiences cycles of ups and downs driven by demand for PCs and, more recently, cryptocurrency mining.
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