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NVIDIA The stock (NASDAQ: NVDA) regularly appears among the top buys and sells on the UK's largest investment platforms. It's been like this for two years now.
Over the past week, it was the third most purchased stock in AJ Bell and the second in Hargreaves Lansdown. Only Microstrategy has seen more action, both in terms of buying and selling.
However, it seems that more British investors are buying it than selling it. Why are you so obsessed with Nvidia stock? Let's discuss.
Impulse
One simple reason why some will get on board is the boost in the stock price. It has increased by 173% in 2024 and 2,397% in five years. That kind of performance is sure to turn heads and turn heads.
No doubt some will be motivated by FOMO (fear of missing out). But as Warren Buffett says: “The dumbest reason in the world to buy a stock is because it's going up..”
Revenue growth
However, many smart investors will have considered the underlying fundamentals of Nvidia as a company. The most surprising thing to note about the chipmaker is how quickly it has been growing its revenue.
Following the launch of ChatGPT in late 2022, revenue has skyrocketed. In fact, Nvidia reported more in the latest quarter ($35.1 billion) than in every quarter combined between 2017 and 2019.
tech companies of all sizes are eagerly devouring Nvidia graphics processing units (GPUs) because they are the best choice for training and running artificial intelligence systems.
Over the long term, revenue growth is a key driver of the stock price. Nvidia is projected to surpass $200 billion by 2026!
Margin expansion
Another reason investors have been bullish on stocks is widening profit margins.
The company enjoys very strong pricing power due to the incredible demand for its GPUs. And economies of scale have reduced production costs as sales volumes grow.
Gross margin is now above 70%, up from 60% in 2018.
Compelling narrative
A hugely important factor for Nvidia is the overall growth story around ai. Without a doubt, it is the most exciting technological development since the Internet.
To be fair, founder and CEO Jensen Huang does a top-notch job generating excitement around ai. His visionary language when talking about his potential can make investors salivate.
In the third quarter, he wrote: “The ai era is in full swing, driving a global shift towards Nvidia computing… ai is transforming every industry, company and country..”
However, this is a risk I see. If the narrative suddenly changes, due to slowing capital spending on ai equipment or increased regulation, then investor sentiment could quickly deteriorate.
Furthermore, for large-scale ai adoption, costs will have to be reduced significantly, especially when it comes to training systems. Nvidia's margins are likely to come under pressure in the coming years.
Because of this uncertainty, I sold my Nvidia shares earlier this year. I would only consider reinvesting if the stock sold off a lot.
silly takeaway
In conclusion, Nvidia ticks almost all the boxes that explain why a stock rises dramatically.
We have breakneck revenue growth, expanding margins, a higher valuation, and a compelling story focused on a once-in-a-generation technology revolution.
Given all this, it's no surprise that many UK investors are obsessed with Nvidia stock.
