Nvidia stock may seem expensive, but the company has a moat that will foster much more growth.
You don’t need to be wealthy to start investing in the stock market. An investment even as small as $500 can grow into something substantial, given the right choice of stock and enough time to allow for the growth to occur. It is, in fact, one of the best ways to build wealth and prepare for a long retirement. Investing does involve risk, though, and it’s smart to have a diversified portfolio with a mix of higher-risk growth stocks and stable, dividend-paying companies.
How much concentration on higher-growth, higher-risk stocks is right for your portfolio depends on many things. Age, life situations, and appetite for risk are all factors. But here’s why Nvidia (NVDA 0.78%) is one growth stock that deserves a place in most anyone’s portfolio, even if $500 is all you have to invest with at the moment.
Is it too expensive and too late?
Investors who have watched Nvidia’s explosive growth — and soaring stock price — may have thought they missed out on a great investment. After all, the stock was recently trading at a price-to-earnings (P/E) ratio of over 60. That’s with the stock trading near its all-time high after tripling over the last year.
Nvidia’s market cap is now at about $3.2 trillion. While sales of about $56 billion in the first half of this fiscal year were 170% higher year over year, that still results in a price-to-sales (P/S) ratio of almost 35. That’s astoundingly high for a large, established company like Nvidia. The law of large numbers almost certainly means that revenue growth rates will decline. The company itself sees only about 8% sequential growth in the current quarter ending in late October.
But Nvidia has several growth levers still available to pull. Investors with enough risk tolerance to stomach a potentially volatile stock price should still consider investing in this growth stock. Here’s why even just a $500 investment in Nvidia stock still makes sense.
Image source: Nvidia.
Nvidia’s moat is like no other
Nvidia hasn’t been resting on its laurels even as demand for its artificial intelligence (AI) products and solutions far outpaces supply. The company has just started shipping its new Blackwell GPUs (graphics processing units) in volume. It has already announced its next GPU platform, called Rubin, will follow Blackwell as it seeks to update its products annually with more powerful and efficient chips.
Competitors aren’t sitting still either, though. With such strong demand, there will be room for others to absorb sales to help supply the AI server stacks quickly filling expanding data center construction. But Nvidia has something that is going to keep customers attached to its AI infrastructure.
Nvidia CEO Jensen Huang recently explained why he sees a lengthy pipeline for future business growth. In an interview with podcaster Brad Gerstner, Huang described how the company is very focused on making sure its products are compatible throughout the installed base of its AI infrastructure. Nvidia’s CUDA (compute unified device architecture) software platform helps developers broaden applications on different types of GPU-accelerated embedded systems. It is the basis of the GPU computing ecosystem.
That platform ensures that Nvidia’s products aren’t becoming obsolete even as it releases its newest chips. While newer, more powerful GPUs like Blackwell and then Rubin are used for training, the older gear is perfect for AI inference, for instance. Large-scale data center managers, or hyperscalers, get locked in with CUDA.
In the interview, Huang discussed how compute power is still important, but it’s not everything. He likened it to a flywheel where it takes AI to compile data to teach more AI. He summarized Nvidia’s approach this way:
Training is just one step. … You really want to create a system that accelerates every single step of that. … Our perspective manifests itself into the product. … We accelerate everything. That entire thing [flywheel] is CUDA accelerated.
Investors haven’t missed out
The process of expanding artificial intelligence use cases makes for a long runway for Nvidia’s growing array of products. And as a first mover in the AI space, its products and platforms are becoming entrenched with customers.
As previously mentioned, the stock isn’t cheap. And it likely will remain volatile. Investors who can look beyond the short-term fluctuations and have a years- or decades-long holding period shouldn’t fear they’ve missed out on Nvidia. It remains a growth stock to own in at least a portion of almost any portfolio.
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