It is clear that we are at the beginning of an artificial intelligence (AI) revolution. It is very likely that AI will have as big an impact on our future as the industrial revolution or the spread of the internet.
We never know what new capabilities will emerge as machines become smarter and able to automate tasks that were previously impossible or required extensive human intervention. Even with that reality, there’s one artificial intelligence stock he wouldn’t touch with a 10-foot pole right now.The stock is actually the biggest winner In the AI revolution so far, Nvidia (NASDAQ:NVDA).
Have I lost my mind?
Let’s be clear: NVIDIA has an incredible first-mover advantage when it comes to AI hardware today. It’s also clear that Nvidia isn’t resting on its laurels when it comes to designing and delivering the next generation of AI-related hardware.
The issues currently keeping me away from Nvidia stock have nothing to do with the company’s business or prospects. It’s a company evaluation. Nvidia stock is trading at the following levels. need That’s because it justifies its already high price on the market and provides impressive growth for years to come.
In my opinion, the best time to buy Nvidia was the brief period between the crypto crash and the beginning of the AI boom. At that point, around September 2022, NVIDIA’s stock was trading on its prospects as a leading hardware designer rather than as a core player in the AI revolution.
Can Nvidia continue to grow? Yes.
Will that business continue to grow as AI becomes more integrated into our daily lives and work? Perhaps.
Will new investors today be rewarded for the risk they’re taking by putting money into NVIDIA stock? Well, that’s where you’ll have a hard time justifying the purchase.
Nvidia may be the one who got away
Why I’m nervous: Analysts expect Nvidia to earn about $20 per share in 2025, compared to estimated $11.50 per share in 2024. ing. Overall, the same analysts expect the company’s profits to nearly double each year over the next five years. Year.
If the company can deliver earnings growth in line with these projections over the next few years, the company’s recent market price would exceed $725 per share. May Justified. But to achieve consistent profit growth over such a long period of time, Nvidia needs to keep pumping out more hardware at higher profit margins.
In addition to that, markets generally try to look to the future when valuing companies. Therefore, it will not be enough for Nvidia to grow like wildfire over the next few years to justify its current market cap.In that case you need at least the following maintain Profits increase over time to prevent stock prices from falling.
Taking a step back from AI-related expectations, Nvidia has a cyclical history. Even if Nvidia benefits from building his AI-related infrastructure, the company will face a natural slowdown if its growth turns into maintenance after the infrastructure is built.
And of course, the competition won’t stop there and Nvidia won’t own the entire global AI computing infrastructure.Even if the competition isn’t equally good Nvidia in the AI space has to be good enough to offer customers an alternative. That would put pressure on Nvidia’s margins and make it more difficult for the company to deliver the large, sustained profit growth that analysts are already expecting.
When you put all these factors together, it’s very likely that Nvidia is the stock that moves away from me. For now, I’m going to watch it on the sidelines and wish shareholders the best of luck.
Be Careful When Choosing Investments
Of course, as someone who follows a value-based investment strategy, I tend to be a little behind the investing crowd when it comes to completely new trends that are changing the world. That said, I almost never participate. boom From these innovative trends, it also means that I am often well positioned to stay with the times. bust something that continues frequently.
On the other hand, today’s Nvidia investors may be rewarded for buying Nvidia stock early enough in the growth stage of the AI revolution. On the other hand, they may find themselves owning bags near the peak of the high point of the business cycle. If you know the outcome with certainty, there won’t be big market movements when a company announces unexpected earnings or a change in its outlook.
Investors should tread carefully, as this uncertainty is the only thing that’s really clear about Nvidia’s stock price. Even if your business continues to prosper, you don’t want to take on so much risk that you’ll end up financially ruined, even if the stock price takes a turn for the worst.
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Chuck Saletta has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has a disclosure policy.
1 “Artificial Intelligence (AI) Stocks You Can’t Touch with a 10-Foot Pole” was originally published by The Motley Fool.
