NVDA's valuation is falling even as its stock price soars!
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As the US stock market struggled to find its footing on Tuesday, $NVIDIA Corp(NVDA)$ , the hottest AI stock, continued its upward trend, closing up 7.2%. Over the past year, the stock has skyrocketed nearly 300%, sparking fears of a bubble.
But guess what? NVIDIA's valuation hasn't gone up in recent months—it's actually gone down!
But let's not get too hung up on valuations for now. The catalyst for NVIDIA's stock surge was $Oracle(ORCL)$ 's impressive quarterly report. The company revealed that demand for AI-centered cloud services is booming and far outpaces supply. In addition, Oracle hinted at more contracts with NVIDIA in the future, even teasing a big announcement with them next week.
So, is NVIDIA still a buy?
Oracle's statement reaffirms that generative AI demand is just getting started, and NVIDIA is in a prime position with its GPUs. With no better alternatives from competitors, NVIDIA dominates this space on two fronts.
First, it's the top provider of datacenter GPUs, with a whopping 98% market share, according to $Wells Fargo(WFC)$ analysts. Since most AI computing happens in the cloud and datacenters, NVIDIA's benefiting big time.
Second, it's also the first choice for machine learning (ML) processors, with a 95% market share. Clearly, NVIDIA has a significant edge over potential competitors, and its market position is rock solid.
This is evident in NVIDIA's financial reports. The company has achieved record growth for three consecutive quarters, with revenue and profit growing at triple-digit rates year-over-year.
Now, here's the million-dollar question: Is NVIDIA still a buy? Can investors still make money by getting in now?
Well, we can't give a direct answer, but let's look at it from a valuation perspective. Despite several quarters of explosive growth, NVIDIA's valuation has actually fallen, with a trailing P/E ratio of 36. Compared to the $S&P 500(.SPX)$ 's P/E ratio of 28, NVIDIA's stock is pricey. But for this super growth stock, a premium is to be expected.
AI demand is still growing, and NVIDIA is sitting right at the tollgate. As long as the AI party keeps going, the company and its investors will continue to reap the benefits.
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