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Is Nvidia a Must Buy or Not?

a close up of a graphics card on a table

In 2002, after the dot-com bubble had burst and Sun Microsystems was in decline, the company’s co-founder Scott McNealy called out Wall Street analysts for their reliance on the “price to sales” ratio to gauge a stock’s value.

The “price to sales” ratio is an important measure of a company’s value compared to its revenue, and high ratios can be justified if investors believe a company has room to grow, while low ratios typically indicate that investors believe the company is appropriately valued.

Sun Microsystems’ stock was deemed undervalued even when it was trading at more than 10 times its revenue, and ultimately, the business couldn’t sustain this value. Scott McNealy critiqued this and highlighted the ridiculousness of the assumptions made by the analysts.

The current stock market evokes similar sentiment among some investors, with Nvidia, a giant chipmaker and poster child of the exuberance around artificial intelligence, drawing attention.

Nvidia’s stock price recently closed at an unprecedented 27 times its sales. But Nvidia isn’t like the revenue-rich but profitless companies of the late 1990s.

The company is highly profitable, generating over $22 billion in revenue in the final quarter of 2023, signifying a 22 percent increase from the previous quarter and over a 250 percent increase from the prior year.

The company’s growth and profitability have made it a darling among investors, especially given its critical role in artificial intelligence.

The optimism surrounding Nvidia has caused its price-to-sales ratio to rise, leaving experts divided on whether the steep ratio is justified or the result of over-excited investors.

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Many Nvidia enthusiasts believe the company will sustain its growth due to its involvement in artificial intelligence. They expect the company to generate more cash, which will eventually reduce the ratio to reflect a more traditional valuation.

While it’s true that Nvidia’s stock price has increased substantially, the high valuation has left some investors feeling uncertain. Regardless of these uncertainties, Nvidia’s stock price surged another 14 percent on Thursday, adding over $200 billion to its market valuation.

It’s not only Nvidia that has caused concern – other companies like Microsoft, Advanced Micro Devices, and Broadcom have also seen their stock prices rise significantly due to excitement around artificial intelligence.

In light of geopolitical uncertainty and other market factors, investing in stocks like Nvidia appears off-putting to some investors. When considering the risk and uncertainty, it raises questions about whether the expected return is worth it.

The price-to-earnings ratio also reveals that the S&P 500 is trading at close to 23 times the collective earnings of the companies in the index – a high valuation that hasn’t been seen since significant market events in 2018 and during the dot-com bubble burst.

However, assessing a stock’s value purely based on snapshot metrics might oversimplify its prospects. Amazon, for example, was once trading at a stock price that was over 40 times its sales.

Since then, its stock price has risen an average of 15 percent annually, and today, it’s just three times its sales. Nvidia could potentially follow a similar trajectory and fulfill growth expectations. But it could also face the fate of many computing companies from the 1980s that didn’t last until the new millennium.

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Despite the lingering uncertainty, predicting a company’s future profitability, its competitors, and the world it will exist within is a challenge.

For Nvidia, Wall Street analysts’ expectations range from pessimistically valuing the stock at $400 to optimistically seeing it trade over $1,000.

As a finance professor at New York University asserted, such high expectations are often unrealistic and reflect an overestimation of a big change, common in the financial world.

In essence, while Nvidia may represent an exciting investment opportunity, it’s crucial to approach it with reasonable expectations and a comprehensive understanding of the uncertainties surrounding the stock. Just like with any stock, the future for Nvidia is unpredictable, and its true path will only be revealed in due time.

Intellectuals Insider

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Is now the right time to invest in gold as prices have cooled?

Now may be the time to buy gold following a recent lull in its price.

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The price of gold has climbed to record highs recently and has remained strong through much of April. And, that growth continued until the precious metal traded at around $2,390 per ounce on April 19, 2024. But since, growth in the price of the precious metal has cooled, with gold’s price now hovering around $2,300 per ounce.

This lull in gold’s price may represent an investment opportunity.

In general, investing is centered around buying assets when prices are low and selling them when prices are high – generating a profit on the difference between the two. So, considering the declines in gold’s price over the past few days, now may be the time to make your investment. But is buying gold during this lull in prices really a good idea?

Compare your gold investment options among leading brokers now.

Gold prices have cooled. Should you buy in now?

With gold’s price down from recent highs, you may be wondering if now is the right time to buy in. There are several reasons the dip in gold’s price may represent an opportunity to buy. Here are some of the biggest:

Prices may rise again

If looking at a gold price chart shows anything for certain, it shows that changes in the overall growth of the medal come in fits and spurts. Periods of price growth are typically followed by periods of declines and vice versa.

But with inflation rising in recent months – and with gold’s reputation as a safe-haven asset that can hedge against inflation – it only makes sense that the price of the precious metal will eventually start to head up again in the future. While attempting to time that directional change may be tricky, buying the precious metal while the price is down gives you the opportunity to take advantage of any upward movement that may be ahead.

Add gold to your portfolio now before prices have a chance to rise.

You may be able to make a quick profit

Gold isn’t known as an asset in which you can earn a quick return, but in today’s market, that may be the case. Don’t forget that in January, gold was trading at just $2,000 per ounce. And, by mid-April, the commodity’s price had climbed to around $2,400 per ounce. That’s about 20% growth in a matter of months, much of which happened since March 1 – an impressive climb for any investment asset.

Perhaps more importantly, gold’s price growth through the beginning of 2024 shows that the commodity doesn’t have to be a buy and hold style investment that you keep in a safety deposit box or precious metal depository for years to come. There’s also the possibility that the commodity’s price could climb further ahead, making it a compelling way to potentially generate a quick profit.

There are other benefits of investing in gold

There are other benefits of investing in gold that have little to do with the price growth seen thus far in 2024 – or the lull in prices seen over the past couple of days. Those benefits include:

Inflation protection: Gold has long been considered an inflation hedge, and for good reason. When inflation drives the prices of consumer goods and services up – and the value of the dollar down – gold’s price tends to rise. So, it could be used to maintain the value of your portfolio during inflationary economic conditions. That’s important in today’s economic environment as stubborn inflation continues to weigh on the value of the dollar.
Portfolio diversification: Gold’s price doesn’t always move in the same pattern that bonds or stocks do. So, mixing a reasonable amount of gold into your portfolio (up to 10% of your portfolio assets) as a diversifier could protect you from losses should one or more of your traditional portfolio assets fall in value. “If you have less than 5% – 10% of your net worth in commodities & FX (forex), you should absolutely consider adding exposure to gold and other precious metals,” says Vijay Marolia, money manager and managing partner at the wealth management firm, Regal Point Capital.

The bottom line

Gold’s price has fallen from recent highs – which may represent an opportunity to tap into growth ahead. However, gold isn’t simply a “buy while it’s low and sell while it’s a high” kind of investment opportunity. The commodity can also protect your portfolio from the stubborn inflation we’ve seen thus far in 2024 while acting as a diversification tool that could increase your risk-adjusted portfolio returns. So, consider adding gold to your portfolio today while it has the potential to grow in value.

Joshua Rodriguez

Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he’s not working, he enjoys time with his wife, two kids, two dogs and two ducks.