- Nvidia (NVDA) stock is headed back toward its highs, despite an extended valuation
- Bulls point to its ambitions in AI and new alliance with Intel
- The market is the only enemy left
Stock in chip designer Nvidia (NASDAQ:NVDA) stock roared back with a vengeance on the heels of its Los Angeles marketing conference.
Shares rose 10%, then rose further overnight on March 25. The stock’s all-time high of nearly $330/share is now in sight. Passing $280, after falling just a few weeks ago to $220, looks extremely good to the bulls.
At its current price Nvidia has a market capitalization of $703 billion, on sales of $27 billion for the fiscal year that ended in January. The trailing price to earnings ratio is up to 73. By way of comparison Amazon.Com (NASDAQ:AMZN) sells for a PE of 50.
| NVDA | Nvidia | $282.19 |
Sunlit Uplands
The big news is that Nvidia will let Intel (NASDAQ:INTC) make some of its chips. It’s a vote of confidence for Intel, which rose 7% on the news. It’s also a sign of how aggressive Nvidia will be in trying to end the chip shortage.
Many of the new chips will go into making the “metaverse” real, powering artificial intelligence (AI) applications and virtual worlds. CEO Jensen Huang said he sees a $1 trillion market ahead.
The company’s new chip set line is named for Grace Hopper, a pioneering software programmer I was honored to meet early in my career. In addition to a central chip, the new line now has two chips and an interconnect, packing 144 cores in a single socket.
While Nvidia’s fabrication alliance with Intel drew headlines, its replacement of Intel in high performance computing will draw profits. Nvidia is becoming a systems company and builder, not just a software outfit. This is reflected in its purchase of Excelero, a software-designed storage company whose NVMesh technology will now go into Nvidia systems.
Risks Remain
Investors saw last year, however, that there is a price that’s too high for even the best companies.
The “tech wreck” of late 2021 and early 2022 was based in part on external events, like inflation and war, that remain big risks. Nvidia’s recovery is helping lift the whole sector. But some investors, who bought into this hype last fall, remain underwater.
I got into Nvidia in 2019, at $150/share. Even after selling some shares to get my stake out, I still have a gain of 184%. But losses elsewhere mean my total portfolio, which is heavily weighted toward tech stocks, is down 10% from its high. Nothing goes straight to the moon and stays there.
Some of Nvidia’s dreams could be dashed if Intel fails to meet its benchmarks, or if it can’t get the capital it needs to expand operations. Collaboration will inshore semiconductor production from Taiwan at a time when global supply chains remain under intense pressure from China.
The Bottom Line
I am a big believer in Nvidia’s future. But investors must be realistic. There are going to be bumps along the way. Not every tech stock will come back. Not every stock deserves to come back.
Nvidia is one that does. Its failure to buy ARM Holdings aside, the company hasn’t put a foot wrong over the last decade. It has moved from a niche in graphics, into cloud data centers, and is now leading the Cloud Czars’ efforts in AI and virtual reality.
Some of the hype, and the fear, around those new markets is overwrought. Nvidia’s partners must still create applications with its technology that save money for customers. But technology is the best weapon we have against inflation, and it’s gratifying that NVDA stock exists to fight it.
On the date of publication, Dana Blankenhorn held long positions in AMZN, NVDA and INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
