Nvidia Stock: Four Reasons Why It's Not Too Late

Nvidia has established itself as a market leader in the stock market over the past five years, recording impressive gains of 2,430%. Despite this remarkable performance, many investors are questioning whether the potential for above-average returns is exhausted. Here are four reasons why Nvidia stock could still be a worthwhile investment. Firstly, the development of AI infrastructure is still in its early stages. Nvidia’s graphics cards form the backbone of the server infrastructure needed for training large language models and AI inference processes. The demand for these chips remains exceptionally high. Tech giants like Meta Platforms and Alphabet are investing heavily in this area to avoid falling behind. The requirements for computing power are growing exponentially, providing Nvidia with long-term growth potential. Moreover, Nvidia's software unit provides the company with a broad competitive advantage. The CUDA software program, which Nvidia offered for free, has become an industry standard. This has led to development processes being heavily reliant on this platform, supporting Nvidia’s over 80% market share in the GPU sector. Competitors like Advanced Micro Devices find it challenging to catch up due to the time and cost-intensive nature of retraining on alternative platforms. Another advantage is Nvidia's accelerated innovation cycle. By introducing new GPU architectures annually instead of the previous biennial cycle, Nvidia remains at the technological forefront. This strategy also enhances pricing power, as cutting-edge chips are sold at high margins. The continuous development significantly increases competitiveness and prevents older hardware from becoming obsolete. Based on certain valuation metrics, Nvidia’s stock appears still to be reasonably priced despite its past gains. A forward price-to-earnings ratio of about 27 and a PEG ratio of just over 0.7 suggest that Nvidia's stock price may be undervalued relative to its growth potential. The recent price correction could potentially offer an attractive entry point for investors. Nvidia is well on its way to further expanding its position as a market leader in AI infrastructure and offering attractive returns to investors in the future.