Recall the seismic jolt that shook the financial world during the great Nvidia (NASDAQ: NVDA) dip of 2024? Nvidia, the stalwart player in the artificial intelligence (AI) market’s ascendancy, hit dizzying heights in mid-July, only to stumble by 20% amidst fleeting market fears in early August. Yet, within a mere couple of weeks, Nvidia was precariously perched back near its prior peaks.
Amidst this tumultuous backdrop, the question looms – is the Nvidia stock bandwagon on the verge of derailment?
Three sagacious Motley Fool contributors lend their insights on Nvidia’s recent market momentum and the potential decision to acquire its shares today. Here’s the essence of their deliberations.
Nvidia’s Ongoing Dominance in AI Chip Sector Calls for Cautious Investment
Will Healy: Acknowledge, Nvidia, the linchpin of the generative AI stocks’ meteoric rise since 2022, remains unchallenged as the premier AI chip manufacturer. Despite spirited competition from rivals like Advanced Micro Devices and Qualcomm, Nvidia continues to blaze trails with its imminent Blackwell chip, affirming its unassailable market supremacy.
Yet, this dominance has been factored into its stock valuation, having surged by a staggering 1,000% since the nadir of the 2022 bear market.
This astronomical growth renders Nvidia’s price-to-earnings (P/E) ratio a misleading gauge of its worth. Undoubtedly, the stock is undeniably expensive, boasting a price-to-sales (P/S) ratio nearing 40, eclipsing the S&P 500’s average of 3. Nevertheless, the foresight of triple-digit revenue escalation augurs well for Nvidia, cushioning the blow of its stratospheric P/S ratio. The forward P/S ratio stands at 26, with a one-year P/S ratio plummeting to 19, underscoring that while the stock remains pricey and susceptible to immediate downturns, protracted slumps are improbable.
Hence, investors undeterred by moderate risk are counseled not only to retain their Nvidia holdings but to contemplate incremental acquisitions via dollar-cost averaging (DCA). DCA methodology secures a strategic stake in the stock while preserving the flexibility to acquire shares at reduced prices amid looming pullbacks.
Appreciating Nvidia’s Merits Amidst Stock Price Strain
Jake Lerch: Poses a conundrum of admiration for Nvidia’s stellar performance juxtaposed against the palpable reluctance to delve into its stock at the present juncture.
Notwithstanding the company’s stellar product portfolio and soaring sales trajectory with vivid growth prospects, Nvidia’s stock valuation acts as a deterrent. The overwhelming dearth in Nvidia’s stock price presents a quagmire for value-driven investors, nudging Lerch to exercise prudence in Nvidia stock acquisition.
Peering through the numerical prism, Nvidia’s stock once flaunted a price-to-sales (P/S) ratio below 3, a stark contrast to its current stratospheric P/S ratio of 40. This exponential surge paints a troubling picture, with the stock trading at historical highs, posing as a red flag for potential investors.
Merely a short while ago, Nvidia’s stock could have been availed at a mere 10 times sales, a bygone era supplanted by inflated valuations. As the future unfolds, Nvidia’s stock continues to stand at exorbitant levels even on a forward one-year P/S basis, adding to Lerch’s reservation towards its acquisition.
The Volatile Journey of Nvidia in the Stock Market
If investing were a rollercoaster, Nvidia would be one of its thrilling rides. Its recent stumble jolted shareholders who had been luxuriating in market-crushing returns. Will it ascend higher next month? None but a soothsayer knows. But the recent downturn teaches a profound lesson about the capriciousness of volatility; it slices in both directions.
Uncertainty Looms as Market Conditions Shift
Examining a stock’s beta value provides a prism into its volatility. A stock intricately linked to the S&P 500 will sport a beta value of 1. A beta below 1 denotes subdued reactivity to the market’s tides, while a beta exceeding 1 signals heightened reactivity. Nvidia’s beta, standing at close to 1.7, reflects its sprint ahead of the market. The stock recently nosedived by 20% from its peak when the market faced early August turbulence.
While Nvidia basks in its AI chip dominance, the stock, by all accounts, appears exorbitantly priced presently. The company’s susceptibility to intense selling pressure upon any market resurgence of volatility remains stark. Economic indicators hint at a slackening economy, including a significant downgrade in U.S. job growth over the past year. The Federal Reserve’s contemplation of interest rate cuts dances on the horizon. Coupled with an imminent presidential election, the market’s resilience since early last year could be pried open.
Navigating the Storm: A Dollar-Cost Averaging Strategy
In an unpredictable market landscape teetering on precipice, embracing a dollar-cost averaging strategy emerges as a sturdy vessel. With the market throbbing with unforeseeable events, a methodical approach to buying, through ebbs and flows, emerges as a wise tack for investors to hoist their sails amidst potential market squalls.
The Temptation of Investment Amidst Uncertainty
Think twice before yoking your funds to Nvidia’s wagon. The Motley Fool Stock Advisor team, in their deliberation, skimmed over Nvidia and spotlighted ten other stocks poised to uncork monstrous returns in the foreseeable future.
Recall Nvidia’s entry into this annalistic list back on April 15, 2005. A $1,000 investment in Nvidia at that juncture would have flowered into a blooming $792,725!* The Stock Advisor extends a roadmap to prosperity for investors, tendering counsel on building a robust portfolio intertwined with regular updates and twin monthly stock selections. Its returns have outpaced the S&P 500 manifold since 2002.
Explore the potential: See the 10 stocks »
*Stock Advisor returns as of August 22, 2024