Nvidia’s valuation has definitely been trading quite high but it’s not very far from its nearest competitor Advanced Micro Devices.
Nvidia (NASDAQ:NVDA) stock remains one of the best artificial intelligence trades to make in 2024. The AI-focused chipmaker’s share price has surged more than 149% for the year. Strong earnings results that even Wall Street has struggled to predict has allowed Nvidia stock to soar higher than many had expected.
Some analysts are wondering if there will be an end to the AI hype that has caused many technology and semiconductor stocks to rally. However, there are signs that the AI craze is far from being behind us. Below are 3 reasons why Nvidia is still your best bet on AI.
Nvidia’s ascent to be one of the most important chipmakers for enabling artificial intelligence is primarily because of the sophistication of its advanced semiconductor chips.
The chipmaker has leveraged its Hopper architecture in its most popular H100 and H200 chips. Large cloud computing giants like Microsoft are using both H100 and H200 accelerators to power artificial intelligence workloads.
In Microsoft’s case, the software giant began introducing additional H100-based virtual machines to Microsoft Azure to accelerate demanding AI workloads and has added H200-based VMs to Azure workloads in 2022. Better yet, Microsoft has continued to increase capital expenditures in order to secure Nvidia’s coveted chips.
In March, Nvidia announced an even better series of AI chips dubbed “Blackwell,” which the chipmaker expects to start shipping sometime in the second half 2024.
This chip series is the most powerful on the market, and even the latest chip0 developments from competitors like Advanced Micro Devices and Intel only compete well against Nvidia’s Hopper architecture.
Toward the end of the second quarter, Nvidia’s share price began to face significant volatility. In particular, Nvidia enjoyed a brief moment as the world’s most valuable company, eclipsing Microsoft and boasting a $3.3 trillion market capitalization.
However, investors and traders such that as an opportunity to sell their shares, which wasn’t a bad idea in hindsight. Nvidia’s market capitalization is sitting at just over $3.0 trillion, having shed more than $300 billion in value.
Now into the third quarter, investors trimming their technology equities stakes before the historical August slump coupled with intensifying U.S.-China trade relations, have cause downward pressure in a plethora chip stocks, including Nvidia.
Nvidia stock has slumped more than 3.6% of the past 10 days and more than 2% over the past month. These bouts of selling pressure present as possible opportunities to buy into the lucrative AI chip stock.
When being bullish and purchasing Nvidia’s shares, investors should consider valuation. As I stated at the beginning of the article, the chipmaker’s earnings have consistently overperformed what Wall Street had estimated prior.
This, in turn, has made it difficult to assess Nvidia’s long-term valuation. According to Koyfin, Nvidia trades at 42.1x forward earning. The market appears to be valuing AMD at a slight discount; the chipmaker trades at 38.9x forward earnings.
Intel takes the cake on boasting a cheaper valuation than many of the large chipmakers, trading at 26.7x forward earnings, but this is nothing to boast about given Intel has been struggling with its Foundry business for many years now and its latest chips are quite behind Nvidia’s Blackwell series.
With that said, Nvidia’s valuation is high but not so much far from its key competitor, AMD, and that gives me confidence in being bullish long-term on NVDA.
On the date of publication, Tyrik Torres did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.