Nvidia has become the fourth largest company in the world, with its share price surging 239% in 2023, and a further 51% gain already this year.
As a result, Nvidia is a retail investor favourite. It is the most bought stock globally on eToro so far this year, and regularly appears in the top 10 lists of most popular shares on other investment platforms. It is currently the fifth most bought share on Interactive Investor this year.
In terms of size, the microchip manufacturer recently overtook tech giant and fellow Magnificent 7 member Alphabet, which owns Google, to become the third largest stock on Wall Street. Globally, Nvidia now stands behind only three companies: Microsoft, Apple and oil firm Saudi Aramco.
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And its star is showing no sign of dimming. Its latest set of quarterly results (published on 21 February) saw a surge in sales and profits, with more expected to come. Off the back of this, we've looked at Nvidia’s meteoric rise and ask whether it’s too late to invest.
The rise of Nvidia
Two years ago, few people had heard of Nvidia. But, a boom in artificial intelligence (AI), and billions of pounds worth of sales to the biggest tech firms on the planet, mean that Nvidia itself is now one of the biggest - and most-talked about - firms on the planet.
The company was founded in 1993 and is based in Santa Clara, California. It designs and makes graphics processing units (GPUs), which are used in a variety of ways, such as video games, cryptocurrency mining and autonomous driving technology.
Now, the trillion-dollar company is focused on AI. CEO Jensen Huang told CNBC in an interview last year that he changed the company a decade ago so that “every chip that we made was focused on artificial intelligence”.
Nvidia is reaping the rewards for its early investment in AI: skyrocketing demand for its high-powered GPUs means it consistently exceeds analysts’ forecasts for sales and profits across previous quarters, driving the share price ever higher.
Sam North, market analyst at eToro, says the company has “very effectively extended its influence into AI and deep learning”, adding: “Revenue streams are diverse, encompassing GPU sales for various applications, data centre solutions, gaming products, professional visualisation, and automotive solutions. This multifaceted approach has positioned the business as a key player in tech sectors driving innovation and advancements in computing.”
According to North, Microsoft, Meta, Google, and Amazon spent more than $10 billion on Nvidia’s chips last year, helping the chipmaker triple its revenue.
Richard Hunter, head of markets at Interactive Investor, says the company has "seriously captured the imagination of investors who are scrambling to anticipate the huge financial benefits that a boom in AI could bring".
He adds: “The chipmaker, whose products already enable the likes of video recommendations on TikTok and advertising recommendations on Instagram and Facebook, is now being seen as a potential leader in the AI space with its computing power at the forefront.”
How is Nvidia performing?
The shares have had a stellar run, most recently following a market update in late November, which revealed that revenues had grown by 206% year-on-year to more than £18 billion, comfortably ahead of Wall Street estimates.
It's latest set of results, released on 21 February, suggest it looks set to avoid the struggles experienced by some of the other Magnificent 7 stocks, particularly Apple and Tesla.
Its fourth-quarter sales surpassed even its own expectations, coming in at $22 billion - 265% up from the $6.1 billion posted in the same period a year ago. It means its revenues for the whole year period rose 126% to $60.9 billion, with full-year profits surging 188% to $44.3bn.
The chipmaker has forecast another strong performance in its ongoing first quarter. It anticipates a 233% year-on-year surge in sales.
HSBC has adjusted the price target on Nvidia shares, increasing it to $835 from the previous target of $800. The share price is currently around 725p. The bank sustained its “buy” rating for the stock.
Away from sales and share prices, cash flow is another impressive metric that Nvidia possesses.
North explains: “Nvidia's asset-light model has contributed to an impressive free cash flow of $17 billion over the last four quarters, surpassing its semiconductor rival Advanced Micro Devices (AMD), which reported a free cash flow of $1 billion.”
Looking at the GPU market more widely, Nvidia holds approximately 80% of the global market share in GPU semiconductor chips.
“Right now, people are believing the hype and the numbers are backing it all up,” says North.
Should you invest?
But when there’s this much hype, could there be a bubble developing?
The ever-rising technology stocks - as seen in Apple, Alphabet, Amazon, Meta, Microsoft, Nvidia and Tesla, dubbed “the magnificent seven” - have led some critics to make the comparison between today’s AI-fuelled boom and the dotcom era.
However, others think the theme has further to run, and investors could make money by buying Nvidia shares - or a fund or investment trust that holds the shares. But, timing is key, and investors should beware of volatility, and be careful not to over-allocate.
North comments: “Since forming a bottom in the market back in October 2022, Nvidia shares have risen nearly 600%. However, it hasn’t always been plain sailing. From November 2021 to the low we saw in October the following year, shares dropped by nearly 70%.”
According to Hunter, the shares could be vulnerable to disappointment as expectations have increased so much. Other potential concerns include the “heightened geopolitical tensions between the US and China, with each seemingly reluctant to sell their advanced technology products to each other, potentially reducing Nvidia sales. In addition, the concerns of many governments regarding AI and its impact on human society warrant deep consideration".
North says that investors wanting to buy Nvidia should look for a dip in the share price as this could be an advantageous moment to buy in.
He adds: “The company's commitment to research and development, coupled with its strong financial position and comparatively low valuation, at 33x forward earnings estimates, suggests there might still be room for growth. As the AI market continues to expand, Nvidia's leadership position and strategic investments make it a stock worth considering, especially if the market provides an entry point at a more favourable price.”
You may find you already own Nvidia via other funds or investment trusts that you invest in. Many US-focused or tech-focused ones will hold the stock. For example, Scottish Mortgage owns Nvidia shares, as do Baillie Gifford American, Allianz Technology Trust, Martin Currie Global Unconstrained, Blue Whale Growth fund, Polar Capital Technology, Sanlam Global Artificial Intelligence, Brown Advisory US Sustainable Growth Fund and GQG Partners Global Equity Fund, to name just a few.
So check if you already own the chipmaker in your investment portfolio to avoid over-allocating and holding too much of the company.
Hunter suggests that more cautious investors who might like some exposure to AI could buy a specialist technology investment trust that spreads the risk across many holdings, “or even a technology tracker which does much the same but on a passive basis”.
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