Nvidia Attains a $30 Billion Markership; Worth Investing in for 2025 Stock Market?
This year has been a triumphant one for tech titan Nvidia (NVDA), witnessing a series of record-breaking achievements. Leader in artificial intelligence (AI) chips, the company has consistently excelled quarter after quarter, fueled by an escalating demand for its products segregated by skyrocketing share prices. Consequently, Nvidia momentarily surpassed giants like Apple in terms of market value. Furthermore, an invitation to join the esteemed Dow Jones Industrial Average and a remarkable performance on the benchmark for the year cemented its position, making Nvidia stock the year's front runner.
It's evident that this AI powerhouse has been operating at full capacity. The streak of milestones, however, does not seem to be slowing down. The company recently achieved another notable fortune, approximated at $30 billion, vividly highlighting the stock's significance for investors at this juncture. Let's delve deeper and evaluate whether Nvidia stock is a worthwhile purchase for 2025.
The GPU's Role in AI
A brief overview of Nvidia's journey thus far. The company originated with the development of the world's best-performing graphics processing units (GPUs), initially used primarily for video game graphics. However, the GPU's ability to handle multiple tasks simultaneously made it an ideal fit for a multitude of applications. Consequently, the GPU transcended its original purpose and ventured into AI. It now plays a pivotal role in crucial AI tasks, such as training and inference of large language models.
As a result, Nvidia's revenue has been skyrocketing in recent years. For instance, revenue in the latest quarter hit an impressive high of over $35 billion, surpassing an entire year's revenue from two years ago. Notably, the company is also highly profitable, boasting a gross margin exceeding 70% in recent quarters.
Nvidia even anticipates maintaining a gross margin above 70% during the deployment of its Blackwell architecture. This indicates the robustness of the company's cost structure, as product launches typically implicate added logistics and manufacturing expenses, thereby negatively impacting profits.
Over the last year, Nvidia has consistently crossed one milestone after another and is concluding 2024 with another significant achievement. Nvidia is on track to become the most-traded security by retail investors this year. Retail investor acquisitions represented approximately $30 billion in net inflows into Nvidia as of December 17, according to Vanda Research. In contrast, Nvidia ranked fourth in terms of purchases last year, amounting to approximately $11 billion in inflows, with Tesla taking the top spot. The data also suggest that retail investor inflows into Nvidia have increased nine-fold from 2021.
Consequently, regular investors like us have significantly upped their investments in Nvidia over recent times, making the company a significant component of many investment portfolios. But does Nvidia possess the requisite qualities to maintain its popularity as a top pick for investors, and is the stock a buy for 2025?
Nvidia's Valuation
Nvidia's popularity among investors has escalated its valuation. Currently, the stock trades at 47x forward earnings estimates, reaching its highest level this year. Despite its premium valuation, it remains relatively reasonable for a growth stock, particularly one operating in a dynamically evolving industry still in its nascent stages. Nvidia CEO Jensen Huang projects that there are approximately $1 trillion worth of outdated computers functioning globally, highlighting room for substantial future growth for Nvidia.
Moreover, a significant occurrence in the imminent future could perpetuate Nvidia stock's upward trajectory. As hinted, Nvidia is launching Blackwell, which has already started production during the current quarter. Blackwell is a fully customizable system, incorporating seven distinct chips, several networking options, and enhanced performance, the implications of which could significantly enhance user experience.
However, it's important to note that a stock's popularity does not automatically denote that it's a buy. Yet, other factors do indicate potential for growth. Nvidia's market dominance, focus on innovation, and Blackwell's launch could generate further excitement for the stock, making it an excellent choice to include in your 2025 investment portfolio.
The significant increases in retail investor acquisitions for Nvidia, totaling approximately $30 billion as of December 17, indicate a strong interest in the company's stock among regular investors. This trend has resulted in Nvidia becoming a major component of many investment portfolios.
Given Nvidia's premium valuation at 47x forward earnings estimates, it remains a promising growth stock in a rapidly evolving industry. The upcoming launch of Blackwell, a customizable system with enhanced performance, could add to the stock's excitement and potential for further growth, making it an attractive option for 2025 investment portfolios. (finance, money, investing)
