It hasn’t been all too clean a breakout for shares of AI chip giant Nvidia (NASDAQ:NVDA | NVDA Price Prediction), which is still down close to 13% after tumbling off its mid-May highs. Indeed, it seems like the company can do everything right and still get rewarded with a reaction that’s relatively muted compared to the rest of the semiconductor scene.
Even if some think that shares of Nvidia have run into a bit of a ceiling just shy of the $6 trillion market cap mark, I still think there are a lot of reasons it might make sense to give the GPU titan the benefit of the doubt.
Of course, the bears, including the likes of Michael Burry of The Big Short fame, also have compelling bear points. But, at the end of the day, it’s up to investors to consider the points from both camps before making a decision on a stock that may very well be among the most puzzling of the Magnificent Seven for more reasons than one.
In this piece, we’ll run through three reasons why Nvidia stock might still be worth keeping on the radar, even if it seems like any further appreciation will be more of a slog.
The stock is starting to look ridiculously cheap
One of the top reasons for interested buyers has to be the valuation. The company is backing up its appreciation with earnings growth. And until that changes or the stock starts getting going again, shares are bound to stay cheap-looking. But just because the price-to-earnings (P/E) multiple is low at 31.3 times or just 22.8 times forward P/E does not mean shares are actually an undervalued bargain hiding in plain sight at the very top of the market.
Of course, it depends on whether demand for AI and the hardware that goes along with it will still stay strong. At this juncture, it’s looking like AI demand is only getting stronger. And as Nvidia readies for the Vera Rubin age while getting into the PC superchip market with RTX Spark, an argument could be made that the off-the-charts growth numbers aren’t about to reverse course, but continue higher.
Based on the market cap, Nvidia looks like another semiconductor stock in a bubble. But based on the financials, it’s a hyper-growth firm in a class of its own.
Competition exists, but Nvidia has stayed a step above
It’s all about custom silicon these days. New ASIC innovations hold plenty of promise as the inference wave rolls in. But, at the same time, Vera Rubin is on the horizon, and it’s going to sell. Given the massive leaps Nvidia has made over the past generation, and where AI demand could go from here if some of the AI bulls are proven right, perhaps that big reversal might not be right around the corner.
Smart bets and collabs across the AI stack
Nvidia’s rolling in big money, and it’s investing in across layers of the stack that go above and beyond the hardware layer.
Whether we’re talking about betting on connectivity or the formation of alliances with some of the other forces (think the top AI labs), helping to fuel the AI boom, every collaboration that the firm makes may very well give Nvidia exposure to the AI revolution. Whether we’re talking about the stakes in the interconnect plays
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