Nvidia, a popular graphics processing units (GPU) manufacturer, is one of the most well-known and promising artificial intelligence (AI) stocks in the market. However, the stock’s valuation might not be as attractive to investors as its products. Even though Nvidia’s revenue has fallen by 21% in Q4, its share price increased by 47% from Feb. 22 to May 24, making it an expensive pick. Nvidia’s market cap is reaching $1 trillion, but its revenue only generates an eighth of what Microsoft does, while its expected profit earnings are predicted to be less than Alphabet’s current earnings despite using two years’ future guidance. Hence, investors are wondering what a reasonable price for Nvidia is.
Nvidia’s saving grace is its rapid growth rate. Despite the slow PC market, AI has created a new wave of purchases. This high demand will slow down eventually, but by then, PC demand will have started to pick up again. This trend will allow Nvidia to grow its revenue at a faster pace, earning it a slight premium. If Nvidia sees growth in revenue with 50%, 30%, and 20% in the coming years, its revenue and profit in three years would be $60 billion and $24 billion, respectively. This would imply 15 times sales and 41 times earnings at its current market value, which is considered expensive.
For investors considering Nvidia, it is important to wait for a price correction. If the stock’s price comes down to a more reasonable level, the company would be an attractive investment despite its impressive products and growth prospects in the market. Meanwhile, investors can look for other promising stocks with more reasonable price tags.
