Nvidia’s Rise: A Historic Achievement and What It Means for Investors
Nvidia (NASDAQ: NVDA) has hit several key milestones over the past year. The stock has surpassed $1,000 and now stands as the second most valuable company globally, following Apple and overtaking Microsoft. This impressive shift can be attributed to Nvidia’s stronghold in the fast-evolving market of artificial intelligence (AI), which is projected to grow from a $200 billion market today to over $1 trillion by the end of the decade. Nvidia produces the fastest AI chips that drive essential AI processes, with demand for its products often outpacing supply.
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A Glimpse into Nvidia’s Growth Journey
Nvidia’s growth story is rooted in its development of graphics processing units (GPUs), which initially targeted the video game industry. Over time, these powerful chips found applications in various fields, especially as the AI sector expanded rapidly. The company’s strategy has evolved to provide a comprehensive suite of AI tools, solidifying its status as the preferred partner for AI initiatives. Moreover, Nvidia’s commitment to updating older technologies ensures that investments in their products will remain relevant.
As a result of this strategy, Nvidia has consistently reported triple-digit earnings growth, with the latest quarter showing record revenue of $30 billion. This figure surpasses even its entire annual revenue for the 2023 fiscal year. Additionally, Nvidia has reported profit margins exceeding 70%, and it anticipates gross margins to remain in the mid-70% for the year.
These outstanding results have earned Nvidia a spot in the Dow Jones Industrial Average (DJIA), a prominent stock index that includes 30 major American companies. Established in the late 1800s, the DJIA serves as a barometer for the overall stock market and economic conditions.
Understanding Nvidia’s Stock Split Strategy
The DJIA weights its members based on stock price, and Nvidia’s recent 10-for-1 stock split has made it more accessible. This split lowered the per-share price, enhancing its eligibility to join the index. While the stock split did not alter the company’s market capitalization or fundamentals, it adjusted the share price to around $120 post-split.
Nvidia is set to officially join the DJIA before trading begins on Friday, Nov. 8. This development raises the question: is Nvidia a worthy investment? While inclusion in such an index may attract some new buyers—such as funds that are required to purchase shares to mirror the DJIA—the immediate impact on Nvidia’s stock performance might not be substantial.
However, Nvidia’s rapid growth, substantial profit margins, and escalating demand for its offerings make it an appealing investment. Even at 47 times forward earnings estimates, the stock appears reasonably priced. Although Nvidia’s entry into the DJIA signifies recognition of its achievements, the company’s earnings outlook and growth potential indicate that it could continue to rise over the long term—suggesting it might be a smart buy now.
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*Stock Advisor returns as of October 28, 2024
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool also recommends Intel and the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
