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NVIDIA (NASDAQ: NVDA) beat earnings estimates on Wednesday (May 22) and shares quickly jumped 7% when the market opened on Thursday.
Sales hit $26bn for the three months to April 30, ahead of analysts' target of £24.6bn.
Earnings per share (EPS) also beat estimates of $5.60 to $6.12.
<h2 class="wp-block-heading" id="h-ai-surge”>Rise of ai
Revenue increased 268%, with profits more than sixfold compared to the same quarter in 2023. artificial intelligence (ai) is largely behind the growth frenzy, with revenue from the company's data center division company that increased more than 400%.
Nvdia also announced a 10-for-1 stock split. It won't change the company's valuation, but it should make investing in the stock a little easier for small investors.
We can only buy or sell in whole numbers. And since the share price was already over $1,000 before the split, there isn't much flexibility.
Upward valuation
Nvidia shares have soared 2,500% in the last five years. But I'm having a hard time understanding some of the numbers we're seeing here.
It has a market capitalization of more than $2.3 trillion. Yes, trillions of dollars. That has 12 zeros. Are you still too stunned? Try this…
Its market capitalization is roughly the same as Italy's expected GDP in 2024. It would take the full value of all goods and services sold in the EU's third-largest economy to buy Nvidia.
And Nvidia is still only the third largest company in the United States. Makes Britain AstraZenecaWith a market capitalization measured only in billions, they look like penny stocks.
Forecasts
Even after this staggering increase, analysts still expect Nvidia's earnings per share to triple between 2024 and 2027.
The valuation must be through the roof, right? Well, we are looking at a forecast price-to-earnings (P/E) ratio of over 40 by 2024-25.
But that's a far cry from the nearly 120 multiple reached in 2023. And those earnings growth forecasts could push the P/E down to as low as 26 by 2027. That might not seem too high at all, even by stock standards UK growth.
What risks?
Does this sound too good to be true?
I see a lot of risk here. One is that there is a tremendous amount of emerging competition in the ai market. As billionaire investor Warren Buffett pointed out, the aviation technology pioneers weren't the ones who made all the money.
Some big investors are already looking elsewhere for ai growth. Cathie Wood, for example, has been selling Nvidia and is investing in smaller stocks like Path to UI.
Bet to win?
So, yes, I think it might be a bit risky to buy Nvidia now, with so many gains behind us.
But then again, if those forecasts come true and we see the P/E drop to 26… I'm tempted, maybe with just a small amount of money. After all, I'll only need $102 to get in now!
