Considering a substantial 1,590% surge, is it advisable to invest in Nvidia when it's hitting a record peak?
Nvidia's Unstoppable Growth in the AI Industry
Nvidia, a leading player in the graphics processing unit (GPU) market, has established a dominant position in the artificial intelligence (AI) sector. The company's success is rooted in its leadership in supporting AI training, a fact evidenced by its significant demand for data center GPUs.
Between fiscal 2020 and fiscal 2025, Nvidia's revenue from data center GPUs increased at a compound annual rate of 64%. This impressive growth has translated into substantial financial gains. In the last quarter, Nvidia reported a net income of $18.8 billion, with an average net profit margin of 36% over the past five years.
Nvidia's stock is currently trading at its all-time high, reflecting the faith investors have in the company's future. The stock's forward price-to-earnings ratio stands at 39.9.
In the first quarter of fiscal 2026, Nvidia's total revenue soared 69% year over year to $44.1 billion. This growth is not limited to domestic markets. The U.S. government's approval of Nvidia's export licenses for H20 chips could potentially generate $2.5 billion in revenue that was previously lost.
Nvidia has also received approval to export and sell its H20 chips in China, following the U.S. government's approval of its application for export licenses. However, the formal export license approval process is still ongoing and uncertain, and the shipment volumes allowed have not been disclosed.
Despite these positive developments, it's important for investors to consider key risk factors. These include potential geopolitical ramifications and the impact of a possible recession. Executives may cut their capital spending plans in such a scenario, which could affect Nvidia's sales.
The trade situation between the U.S. and China remains dynamic, and the tense relationship can still affect Nvidia's business in the future. However, Nvidia's dominance in the industry, impressive growth, and substantial margins continue to make the case for buying the stock compelling.
The consensus analyst estimate calls for earnings per share to grow at an annualized pace of 32% between fiscal 2025 and fiscal 2028. This growth, coupled with Nvidia's leadership in the AI industry, positions the company as a strong pick-and-shovel play, supporting the development of AI infrastructure.
However, it's crucial to remember that Nvidia is not associated with specific AI platforms like OpenAI's ChatGPT, Anthropic's Claude, or Alphabet's Gemini. The company benefits from the growth of the AI industry as a whole.
In conclusion, while there are risks associated with Nvidia as an investment, its impressive growth, substantial margins, and leadership in the AI industry continue to make it an attractive investment option. Investors should carefully consider these factors when making their decisions.
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