This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Three years ago, OpenAI's ChatGPT hadn't even launched. Today, it is the leading software service in the multibillion-dollar generative artificial intelligence (AI) industry.

Nvidia (NASDAQ: NVDA) also plays a massive role in that arena. But with its shares up by more than 1,000% over the last three years, investors have to wonder how much growth potential is left for the chipmaker. Could it still be a compelling long-term buy?

Nvidia's stock is surprisingly reasonable

With a market cap of $4.63 trillion, Nvidia is the largest company in the world. And investors could be forgiven for assuming it's trading at sky-high multiples that are detached from its fundamentals.

But that isn't the case. With a forward price-to-earnings (P/E) multiple of just 28, Nvidia stock has a surprisingly reasonable valuation compared to the Nasdaq-100's average of 26, particularly when considering its explosive top- and bottom-line growth rates.

In the second quarter, its revenue soared 56% year over year to $46.7 billion, driven by strong sales in its data center segment, where the company designs and sells the cutting-edge AI chips most commonly used to train and power large language models (LLMs). Despite selling physical products, it boasts a software-esque gross margin of 72.2%, which shows that its chips continue to be well differentiated from the competition because of factors like CUDA, the proprietary software platform that helps developers program its chips for specific tasks.

Investors can compare this to the way Apple synergizes its iOS with its iPhones to make them work better together, and tries to create a walled garden of services and apps that makes it harder for users to leave the ecosystem for alternative hardware, even if rival devices have comparable raw technical stats.

Nvidia's economic moat gives it immense pricing power, which flows straight to its bottom line. Second-quarter earnings per share jumped 61% year over year to $1.08, and analysts expect more growth in the future.

What could go wrong? 

Nvidia's CUDA platform and its cutting-edge chip design have combined to secure it a dominant position in the market for generative AI hardware. And its customers continue to spend eye-popping sums on its wares. According to The New York Times, big tech's data center buildout is actually accelerating, with Alphabet, Microsoft, and Amazon spending a combined $112 billion on capital expenditures over the last three months alone. Much of that cash went to Nvidia's high-priced AI chips for data centers.

On the surface, it looks like everything is great. Nvidia has a strong economic moat, its customers remain willing to buy its products, and its valuation remains incredibly low compared to its earnings growth. What could go wrong?

The short answer is the technology itself. Right now, generative AI doesn't seem to be commercially viable on a large scale because of challenges with LLM accuracy and the immense costs needed to run and train the algorithms. (Nvidia's high prices play a role in inflating costs throughout the industry.)

The losses are getting hard to ignore. For example, ChatGPT creator OpenAI expects to lose $9 billion this year on $13 billion in revenue, a burn rate of around 70% of sales. Losses are expected to increase as it scales up its operations.

It is normal for growth companies (and by extension, industries) to generate losses when they are in their early expansion phases, but the AI buildout seems to be based on some core assumptions that may not materialize. There is actually no guarantee that today's generative AI systems will evolve into more useful forms like artificial general intelligence (AGI), which is a currently theoretical technology that would be able to solve problems and learn without human input.

Many analysts are already arguing that LLMs' development may be reaching a point of diminishing returns. And if the technology doesn't become dramatically more useful, Nvidia's customers may begin to rethink the vast amount of resources they are committing to their infrastructure budgets.

What do the next three years have in store?

With its relatively low valuation and strong customer demand, Nvidia stock looks unlikely to crash anytime soon. But it's also hard to get excited about it as an investment now, considering the extreme hype and lack of profitability on the consumer side of the AI industry.

In light of all that, Nvidia stock looks to me like a hold for now. And investors who already own shares should consider taking some profits.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Nvidia stock be in 3 years? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

It's been three years since OpenAI's ChatGPT introduced the world to generative artificial intelligence (AI), and the booming industry shows no signs of slowing down as technology giants continue to pour billions into AI chips and other forms of infrastructure. With shares up by an eyewatering 1,300% over the last half-decade, Nvidia (NASDAQ: NVDA) is one of the most obvious beneficiaries of this megatrend.

That said, the iconic chipmaker now boasts a market cap of $4.83 trillion, which makes it comfortably the largest company on earth. For comparison, the entire nation of Germany had a gross domestic product (GDP) of just $4.66 trillion in 2024. And while that's not an apples-to-apples comparison, it does show the level of value we are dealing with. Nvidia's massive size is sure to leave investors wondering if further growth is even possible. Let's explore the pros and cons of the stock to decide what the next five years might have in store.

Business continues to boom

Perhaps the most surprising thing about Nvidia's $4.66 trillion price tag is that it isn't as expensive as it looks when you consider key factors like growth and profitability. Fiscal second-quarter earnings make the company look more like a fast-growing start-up than an established behemoth.

Revenue soared 56% year over year to $46.7 billion, driven by continued strength in the data center segment, where Nvidia sells its most advanced enterprise AI chips like Blackwell. With a gross margin of 72% the company manages to sell its cutting-edge hardware at a tremendous markup. For context, software specialist Microsoft only boasts a gross margin of 69%, despite typically not even selling physical products.

Nvidia maintains its incredible pricing power because of a strong economic moat built around its CUDA ecosystem of software and tools designed to work best with Nvidia hardware. This advantage makes it hard for clients to switch to competitors (like Advanced Micro Devices' MI350x Instinct series), even if they offer similar raw capabilities. Unsurprisingly, the company's bottom line continues to surge, with second-quarter net income jumping 59% year over year to $26.4 billion.

What are the challenges?

With a forward price-to-earnings (P/E) multiple of just 30, Nvidia stock is downright cheap when you look at its current fundamentals. For context, the Nasdaq-100 has an average forward P/E of 28, and few companies on the index can compare to Nvidia's explosive growth and strong moat. That being said, sometimes investors need to look past the numbers.

Even though Nvidia's valuation makes perfect sense compared to its profitability and growth, the company still feels too big for comfort. And there are some compelling reasons why. For starters, there are questions about the sustainability of the chip purchases fueling its growth. 

According to The Wall Street Journal, tech giants including Alphabet, Meta Platforms, Microsoft, and Amazon spent a whopping $360 billion in capital expenditures over the last 12 months, with much of that going to Nvidia hardware to build out data centers. And while this might not be a traditional bubble, there is a real possibility that this level of spending could slow dramatically if generative AI doesn't turn out to be as profitable as expected. There are some early warning signs.

An August MIT study found that 95% of generative AI pilots fail to create meaningful value for companies. And the industry's frontrunner, OpenAI (a major customer for Nvidia), may have lost a whopping $11.5 billion in the most recent quarter because of the high costs of running its large language models (LLMs). With such dizzying losses, it may be a matter of time before shareholders revolt and companies start reevaluating the amount they are spending on AI hardware. If this happens, Nvidia's growth and margins could quickly come under pressure.

Where will Nvidia stock be in five years?

While Nvidia looks fairly valued compared to its explosive growth and profits, the company is overexposed to the generative AI industry, and that makes the stock riskier than its raw fundamentals might suggest. Potential investors may want to sit on the sidelines for now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Nvidia stock be in 5 years? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

With shares up more than 50% since the start of April, Nvidia's (NASDAQ: NVDA) stock regained momentum as generative AI technology has become mainstream. While the company's revenue growth is de-accelerating, new priorities like sovereign AI, automotive automation, and robotics could power the next leg of expansion. Let's explore how this story might play out over the next five years and beyond.

The first $4 trillion company

On July 9, Nvidia made history by hitting a market cap of $4 trillion, making it the most valuable company in the world. Software giants like Apple, Alphabet, and Microsoft previously held this position. And Nvidia's AI-driven ascension may be a repeat of the internet-led boom that allowed these companies to overtake 20th-century leaders like General Electric and International Business Machines, or IBM, which dominated the early digital era.

Generative AI's rise has become almost undeniable. And this means a lot of value will shift away from traditional companies to disruptors optimized around the new technology. For example, OpenAI's ChatGPT is already eroding demand for Google Search. And the San Francisco-based start-up expects revenue to top $125 billion by 2029 as it disrupts more industries.

Investors are betting that the rise of AI will drive demand for the Nvidia chips and infrastructure needed to run and train large language models (LLMs). So far, that is happening. But the future is less clear-cut because Nvidia's clients are trying to reduce their reliance on its chips.

Alphabet and Amazon are already investing heavily in their own chip design capabilities, and others could soon follow suit. According to Reuters, OpenAI aims to finalize its first custom chips this year, with mass production slated for 2026. And while Nvidia's size and popular programming platform CUDA give it a strong economic moat, investors should expect these advantages to erode over time because of the benefits companies can get by designing their own infrastructure.

Could Sovereign AI drive the next leg of growth?

With a few notable exceptions, including SAP and ASML, the E.U.'s stock markets are often dominated by last-century companies like Hermes, LVMH, and L'Oreal, which specialize in low-tech industries like fashion, skincare, and makeup. The continent's domestic companies missed out on much of the 2010s software and internet boom. And the emergence of generative AI could cement its reliance on foreign tech companies, possibly introducing political and cultural incompatibilities.

Nvidia aims to help solve this problem with a business vertical it calls sovereign AI, which is designed to help national governments build LLMs and AI infrastructure within their own borders. The idea has taken off in Europe. And Nvidia is working with France, Italy, and the U.K. to help their local players deploy thousands of its Blackwell chips.

Sovereign AI is also booming in the Middle East, where Nvidia is working with a Saudi government-backed company, Humain, to build "AI factories" focused on physical AI solutions like robotics and automation.

In a sense, Nvidia is helping foreign countries reduce their reliance on American hyperscalers, just as these hyperscalers work to replace Nvidia's chips in their business models. And while investors shouldn't expect sovereign AI to be as dynamic as free-market-led solutions, it will probably be more resistant to hostile regulation because it is public-sector-led and likely designed to address public safety concerns.

Where will Nvidia be in 5 years?

The AI industry looks increasingly capable of transforming the world. And that means Nvidia will likely remain a dominant company, despite some near-term challenges. A pivot to sovereign AI could help counteract a potential slowdown in demand as more enterprise clients turn to custom chips and other forms of home-grown AI infrastructure.

But while Nvidia certainly deserves its $4 trillion market cap, investors who buy the stock now may be a little late to the party. The stock's price-to-earnings (P/E) multiple of 53 (the S&P 500 has an average of 30) suggests a lot of the upside is already priced into its valuation.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Nvidia stock be in 5 years? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Forget Nvidia. This little-known ETF is up more than 3,600% in 2026
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• You don't need to own Nvidia to invest in AI – Here are the best Aussie artificial intelligence shares
• This ASX stock could be a surprise winner of the AI boom

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ASML, Alphabet, Amazon, Apple, International Business Machines, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends GE Aerospace has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended ASML, Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Three years ago, OpenAI's ChatGPT hit the scene, spurring a new industry called generative artificial intelligence (AI) that's revolutionizing the way companies do business. Amazon (NASDAQ: AMZN) already incorporated this technology into many aspects of its operations, and investors can expect to see the effects of this transition over the next three years. Let's dig deeper to see how this story might play out for the stock.

An increasingly undeniable opportunity

At first, it seemed like generative AI might be more hype than substance, but those fears are now convincingly put to rest. We no longer need to rely on Wall Street's analyst projections to see what is happening. The tech is already creating boatloads of shareholder value for early movers.

CNBC reports that AI industry leader OpenAI has hit annual recurring revenue of $10 billion per year. A recent $40 billion private funding round puts its valuation near $300 billion, making it one of the world's most valuable private businesses. The good news is that, despite not being a pure-play generative AI company, Amazon has plenty of ways to tap into this monumental value-creation opportunity.

Amazon's compelling AI strategy

Amazon has a close relationship with OpenAI rival Anthropic, which also specializes in large language models (LLMs). Amazon is only a minority owner of the company. But the partnership compels Anthropic to use Amazon's infrastructure solutions, such as its cloud computing platform, Amazon Web Services (AWS), to manage its data and use its AI chips, Trainium and Inferentia, to help run and train its models.

Amazon also has ways to benefit directly from AI technology through massive cost-cutting opportunities. According to CEO Andy Jassy, the company expects to shrink its corporate workforce over the coming years as it adopts more generative AI tools and agents. This news comes after Amazon already laid off 27,000 employees since 2022 (out of a total of around 1.56 million, including its warehouses).

Being such a large employer paradoxically turned into a liability for Amazon. The company had to deal with protests, strikes, and calls for unionization. This tension may have led to the closure of all seven of Amazon's warehouses in Quebec, Canada, leading to possible legal action alleging anti-union behavior (the company denies this).

For Amazon, AI and robotics offer the opportunity to reduce political exposure while shifting its employee mix toward higher-skilled and potentially better-paying roles.

The company has become a leader in robotics, deploying a jaw-dropping 1 million robots across its facilities (that's almost as many robots as Amazon has human workers). As this technology improves, it could boost Amazon's productivity and help it stay competitive against rivals like Walmart, which is encroaching on its economic moat by pivoting to e-commerce. According to The Wall Street Journal, Amazon now ships about 3,870 packages per employee, up from 175 in 2015, due to robot help.

Where will Amazon be in the next three years?

The positive catalysts are already starting to show up in Amazon's operating results. First-quarter net sales increased by a respectable 9% year over year to $155.7 billion, driven by strength in the AWS segment, which jumped 17% amid surging demand for AI-related services.

Amazon's operating income jumped 20% year over year to $18.4 billion. Over the coming years, investors should expect the company's bottom line to maintain a strong growth trajectory due to companywide cost-cutting and higher-margin AWS growth. Shares look likely to continue outperforming the broader market.

 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where Will Amazon Stock Be in 3 Years? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon and Walmart. The Motley Fool Australia has recommended Amazon. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Long-term investing is usually the key to sustainable stock market returns. But a company's short-term risks and opportunities can reveal early clues on how the whole story will play out. 

Let's dig deeper to see how competition in the artificial intelligence (AI) industry and a push for sovereign AI could affect Nvidia's (NASDAQ: NVDA) performance over the next year and beyond.

Nvidia is still the king of generative AI

Make no mistake, Nvidia is still the king of the generative AI training and inference chip industry with an incredible market share of 80% to 90%. The company maintains its economic moat with a combination of constant innovation, support software, and a developer community that is accustomed to using its products. That said, when you are already at the top, there is only one way to go: down.

That isn't to say Nvidia's business is crashing, because it isn't. First-quarter revenue jumped 69% year over year to $44.1 billion, which is a healthy expansion driven by the continued rollout of the company's new Blackwell-based AI chips. However, this is a stark deceleration compared to the 262% growth rate Nvidia experienced this time last year.

Some observers will chalk up Nvidia's relatively lackluster first-quarter performance to challenges in China, where the Trump administration's policy effectively ended its imports of H20 chips into the country (causing a $4.5 billion impairment charge related to excess inventory). However, this may be the start of a longer-term trend, a little closer to home.

Nvidia's clients are becoming its rivals

Historically, Nvidia has managed to sell its hardware at gross margins pushing 80%, which is a level typically seen with software companies that don't sell physical products. These immense mark-ups create an incentive for Nvidia's biggest clients (many of which are technology leaders in their own right) to replace its products wherever possible.

OpenAI has been particularly aggressive in its efforts to diversify its supply chain. In February, OpenAI began finalizing designs with Taiwan Semiconductor Manufacturing to fabricate its first custom AI chip to help run and train its AI workloads without relying on Nvidia hardware.

Custom chips are a particular threat to Nvidia's business model because they can be more cost-effective for specialized use cases compared to Nvidia's one-size-fits-all solutions. And OpenAI expects to have its new chips ready for mass production in 2026.

Other major clients like Alphabet and Amazon already make in-house chips, which are offered for client workloads alongside Nvidia hardware through their respective cloud computing platforms, Google Cloud and AWS.

What will the next year have in store?

While Nvidia has a great deal of near-term challenges, it also has opportunities. One of the biggest of these may be a concept called sovereign AI, which involves helping countries control their own AI data, hardware, and infrastructure without over-relying on foreign tech companies (mainly in the U.S.). For many countries, this is important because their unique linguistic, cultural, and political situations may not be well served by large language models developed elsewhere.

So far, Nvidia has received a warm reception while pioneering this idea in Europe, where it is helping France, Italy, and the U.K. deploy thousands of Blackwell systems with the help of local partners. Nvidia is also making progress in the Middle East, where it is working with a Saudi partner, HUMAIN, to build what it calls AI factories using its hardware.

The sheer scale of these projects (the deal with HUMAIN may involve 5,000 Blackwell chips) could help Nvidia counteract the potential declines in private sector demand for its products. That said, this story is just getting started. And it is unclear if the soverign AI concept will fully catch on. Investors should probably wait for more information before considering a position in the stock.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Nvidia stock be in 1 year? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Vanguard ETFs vs. Betashares ETFs: Who's coming out on top?
• Forget Nvidia. This little-known ETF is up more than 3,600% in 2026
• Should I buy the iShares Global 100 ETF (IOO) now?
• You don't need to own Nvidia to invest in AI – Here are the best Aussie artificial intelligence shares
• This ASX stock could be a surprise winner of the AI boom

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool Australia has recommended Alphabet, Amazon, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

If you have been following Tesla (NASDAQ: TSLA) for the last decade, you will know that it has always attracted a cult following. The electric automaker is perceived as a technology disruptor that isn't afraid to push the envelope under the leadership of its controversial CEO, Elon Musk. And it has typically enjoyed a premium valuation compared to tangible performance metrics like revenue and earnings.

But despite a nosebleed valuation, Tesla has historically proven its naysayers wrong, achieving its first full-year profit in 2020 and becoming the most profitable American automaker in 2022.

The honeymoon period didn't last long. Three years later, Tesla is once again overvalued because of a dramatic drop in profits amid electric vehicle (EV) competition and consumer boycotts related to Elon Musk's political activism. Over the next ten years, the company will have to prove itself once again. Let's dig deeper to see how this might play out.

Why Tesla needs to pivot

America's most successful tech giants have a clear pattern. They often use the scale and infrastructure developed for their core business to establish a competitive edge in even bigger opportunities. Amazon used its e-commerce marketplace as an anchor tenant for its cloud-computing division, Amazon Web Services (AWS). Nvidia's video game graphics tech turned into the foundation for its leadership in generative AI hardware. Tesla aims to pull off a similar pivot with its auto business.

Something clearly needs to change. Tesla's first-quarter earnings demonstrate that EV manufacturing is no longer capable of justifying an otherworldly valuation. For context, shares trade for a price-to-earnings (P/E) multiple of 184 compared to the S&P 500 average of 28.

Meanwhile, Tesla's total revenue fell 9% year over year to $19.3 billion, driven by an alarming 20% drop in total automotive sales due to intense consumer boycotts in the U.S. and Europe. Recent refreshes of the Model Y and Model 3 did little to stop the bleeding. And operating profits tanked 66% year over year to $399 million. New business verticals will likely be the only way for Tesla to regain a growth trajectory.

Tesla's 10-year strategy

Over the next ten years, Tesla's story will depend on its non-automotive revenue streams, which have likely always been part of its long-term strategy. Some of these businesses are already booming. For example, energy generation and storage revenue jumped 67% to $2.73 billion, representing around 14% of total sales. And because this business focuses on commercial and government clients, it is shielded from some of the brand erosion Tesla has seen among regular consumers.

However, as time goes on, Tesla's self-driving and robotaxi businesses will likely determine the company's future. According to analysts at McKinsey and Company, autonomous driving could create $300 to $400 billion in revenue by 2035, and much of this will likely be high-margin software and services as the technology is potentially marketed as a recurring subscription or used for autonomous taxi services.

As an automaker, Tesla has a tremendous advantage over its primary U.S. rival, Waymo, which must source its cars from expensive third parties that are vulnerable to tariffs. Tesla's focus on inexpensive cameras and computer vision could also help make its strategy more scalable than Waymo's expensive combination of LiDAR, radar, and other sensors.

Tesla robotaxi service launched in Austin, Texas, this month. And while early operations will be geofenced to areas the company considers to be safest, the program could generate valuable training data and help set the stage for larger-scale commercialization in the future.

Is Tesla stock a buy?

Tesla clearly has the potential to justify its sky-high valuation through new growth opportunities like self-driving cars. Over the next 10 years, the company can regain its growth trajectory as these new opportunities defray weakness in its core automotive operations.

That said, Tesla still doesn't look like a compelling buy because success is already priced into the stock. Furthermore, Elon Musk's political antics have created a cloud of uncertainty over the company that could severely impact its ability to pioneer new and often controversial technologies. Investors should wait for a lower price before buying shares.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Tesla stock be in 10 years? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Nvidia, and Tesla. The Motley Fool Australia has recommended Amazon and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Three years after the launch of OpenAI's ChatGPT, the generative AI hype cycle is getting long in the tooth as investors grow impatient with the lack of value being created on the software side of the industry.

Artificial intelligence (AI)-related tech companies like Palantir Technologies (NASDAQ: PLTR) and Tesla (NASDAQ: TSLA) are now struggling to justify their optimistic valuations. They also face the unraveling of political hype, which boosted their stocks after Trump's election victory in November. Let's discuss some reasons why these stocks aren't worth buying on the dip.

1. Palantir Technologies

Palantir's bull thesis is losing steam, with shares down 36% -- at the time of this writing -- from their all-time high of $125 reached in mid-February. The company's shares boomed after it integrated AI large language models (LLMs) into its data analytics platforms, while Trump's election victory generated additional hype. However, both catalysts are turning into disappointments.

While Palantir's co-founder Peter Thiel is a public backer of Trump and his vice president, JD Vance, it is unclear how this will lead to tangible benefits for Palantir. On the contrary, some of the new administration's goals (such as reducing the Pentagon budget by 8% annually) could actually shrink the market for Palantir's services. Government clients made up around 42% of its revenue in full-year 2024.

Palantir's AI pivot is also not as transformational as the market seemed to expect. While company sales grew 47% in 2020 (two years before OpenAI's ChatGPT brought generative AI to the mainstream), its growth rate has fallen to just 29% in 2024. While this isn't a horrible growth rate, it doesn't justify the company's price-to-earnings (P/E) multiple of 419.

The company's profitability is also under pressure from massive stock-based compensation expenses, which totaled $281.8 million in the fourth quarter. That's 74% of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

2. Tesla

Like Palantir, Tesla's stock price has boomed in response to generative AI and Trump's election victory. However, while Tesla's CEO, Elon Musk, plays a role in the new administration, investors may have underestimated the negative impact political involvement is having on his company.

According to analysts at JPMorgan, Tesla has experienced unprecedented reputational damage. And this trend is having a noticeable impact on sales, especially in European countries like Germany, where February sales plunged 76% compared to the prior-year period (to 1,429 vehicles sold).

That said, if there is any silver lining to the situation, individual European countries are not that important to Tesla's overall business. And Musk could use his political influence to ease tensions in the world's largest EV market, China, where potential anti-U.S. sentiment could have a much more significant impact on operational performance. In 2024, Tesla sold more than 657,000 units in China. And Musk will need to shore up this business in the face of rising competition from domestic rivals.

With a P/E multiple of 118, Tesla's valuation seems too high, considering its slowing sales, reputational damage, and other challenges in its international markets. A pivot to AI and self-driving cars could eventually help the company diversify outside the automotive industry. But until that happens, investors should stay far away from the stock.

Which stock has a better chance of recovery?

Palantir and Tesla are both overvalued stocks that look poised for continued downside. But between the two, Palantir looks more likely to crash because of its higher level of overvaluation.

While Tesla also faces intense near-term challenges, its self-driving technology could eventually unlock new revenue streams in software and services. While investors should stay away from Tesla stock now, they should keep the company on their watch list pending more information about these potential long-term growth drivers.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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JPMorgan Chase is an advertising partner of Motley Fool Money. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase, Palantir Technologies, and Tesla. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

With shares down 20% year to date, Nvidia (NASDAQ: NVDA) has been off to a bad start in 2025, even though its chip business continues to fire on all cylinders. Is the market predicting an end to the generative artificial intelligence (AI) hype cycle? Let's dig deeper to determine what the next nine months might have in store for the industry's leader.

Fourth-quarter earnings were not bad

When a company's stock starts falling, it's easy to blame poor operational performance. But that hasn't been the case for Nvidia. Fourth-quarter earnings show a business that is still firing on all cylinders. Revenue soared 78% from a year ago to a quarterly record of $39.3 billion, driven by strength in the company's data center segment, where it makes advanced AI chips for running and training large language models (LLMs).

While Nvidia started as a gaming chip designer, expensive data center hardware has become its bread and butter. Its latest AI chip, Blackwell, is estimated to cost a whopping $30,000 to $50,000 per unit. But these new products boast dramatic improvements in power and efficiency compared to their predecessors, potentially allowing clients to save money using them. According to CEO Jensen Huang, demand is "insane."

That said, everything isn't peaches and cream. Nvidia experienced a three-point drop in fourth-quarter gross margins (to 73%), but that was likely because of temporary challenges associated with the rollout of its new Blackwell chips. Management expects the trend to continue in the first quarter, with gross margins dropping to 71% as it ramps up production.

The market isn't impressed

At the time of writing, Nvidia's shares are down 14% from the release of earnings on Feb. 26. This dip suggests the market isn't very impressed with the company despite its high growth rate and the successful rollout of its Blackwell chips. Some might blame this on the falling gross margins. However, the bigger challenge may come from long-term demand.

In February, Microsoft shocked the tech world when it scrapped some leases for data centers in the U.S. The software giant is believed to be one of Nvidia's top consumers, and a reduction in its data center capacity could indicate a desire to reduce its exposure to the industry.

While Microsoft probably won't give up on AI, its CEO, Satya Nadella, suggests the technology isn't creating much meaningful value yet. If one of the industry leaders says this openly, other Nvidia clients (such as Alphabet and Meta Platforms) may feel the same way behind the scenes.

Further alarm bells are coming from another major Nvidia client, OpenAI. Last month, the generative AI start-up finalized a design with TSMC to make its own custom chips to reduce its reliance on third-party suppliers. Custom chips are designed for specialized workloads, so they have fewer unnecessary components, making them cheaper and more efficient compared to the one-size-fits-all GPUs typically provided by Nvidia.

If major clients scale back their AI investments and turn to custom chips, Nvidia's growth potential could be seriously eroded.

What's next for Nvidia?

With a market cap of $2.6 trillion, Nvidia is already a huge company. And future upside looks limited, especially as investors become more concerned with challenges like falling gross margins and potential demand erosion. That said, shares also look unlikely to crash in 2025.

With a forward price-to-earnings (P/E) multiple of just 25.5, Nvidia shares are valued only slightly higher than the Nasdaq-100 estimate of 25, making them quite affordable and reducing the risk of downside. The stock is likely to remain flat this year unless there is a severe deterioration in macroeconomic conditions, such as a recession.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

With shares down more than 10% year to date, Nvidia's (NASDAQ: NVDA) rocket ship rally has hit a roadblock, even as its chip business continues to break records. Fourth-quarter earnings were yet another slam-dunk success -- but instead of celebrating, investors responded by selling the stock. Are Nvidia shareholders tired of winning, or is something deeper at play? Let's explore what the next 12 months could have in store.

Fourth-quarter earnings were another slam dunk

Nvidia investors usually have nothing to fear on earnings day. The company has a long track record of beating expectations, and the fourth quarter for fiscal year 2025, which ended Jan. 26, was no exception. Revenue jumped 78% year over year to $39.3 billion, driven by continued strength in the data center segment, where it sells graphics processing units (GPUs) for running and training AI algorithms. This technology is rapidly evolving, and Nvidia frequently upgrades its offerings to boost growth and keep competition at bay.

The company's latest Blackwell GPUs will be the key to its near-term success. These chips are expensive, with a price tag between $30,000 and $40,000 per unit. However, with significant improvements in speed and energy use compared to previous-generation hardware, they can actually save clients money as they manage AI-related workloads.

According to management, Nvidia has reached full-scale production of Blackwell -- selling $11 billion worth in the fourth quarter mainly to large cloud service providers like Amazon, Microsoft, and Alphabet.

What are some of the risks?

Despite the undeniably strong earnings, Nvidia's shares tanked around 8.5% on earnings day, suggesting many shareholders are getting jittery. The apprehension might be related to guidance. While management expects first-quarter revenue to grow to $43 billion (up 65%), they see gross margins declining from 78% to 70.6% year over year.

Falling margins suggest that competition may be causing Nvidia to lower its prices, which could lead to slower earnings growth. The company faces direct competition from other GPU makers, such as Advanced Micro Devices, which has designed its MI325X to compete with Nvidia's Blackwell GPUs.

However, the most significant risk might be from custom chips.

Custom chips are optimized for specific applications, eliminating unnecessary components and potentially making them cheaper and more energy-efficient than Nvidia's general-purpose GPUs.

While many of Nvidia's clients already use custom chips in small numbers, this trend could grow. In February, OpenAI (the maker of ChatGPT) finalized its design with Taiwan Semiconductor Manufacturing for a custom chip with the goal of mass-producing it next year and reducing reliance on Nvidia. Even if competition doesn't challenge Nvidia's market share, it could hurt its pricing power and margins by making clients more price-sensitive.

Another threat comes from the Chinese start-up DeepSeek, which created a competitive large language model (LLM) using Nvidia's older H800 chips. DeepSeek's achievement could raise questions about whether Nvidia's latest hardware is even necessary.

Don't expect much stock price growth this year

With a market cap of $2.9 trillion, Nvidia has limited potential for stock price growth, even in the best-case scenario. The larger something is, the more force is needed to move it. And while the industry-leading chipmaker will likely enjoy top-line expansion, its margins could face pressure as clients turn to custom chips and reevaluate the amount of money they are pouring into what remains a highly speculative industry.

That said, Nvidia still seems like a decent value. With a forward price-to-earnings (P/E) multiple of just 28, shares are in line with the Nasdaq-100's forward estimate, despite the company's excellent growth rate. This valuation prices in much of Nvidia's potential headwinds, so a big crash looks unlikely, absent deterioration in macroeconomic conditions.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where Will Nvidia Stock Be in 1 Year? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Alphabet, Amazon, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Advanced Micro Devices, Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Historically, few companies have demonstrated more millionaire-maker potential than Nvidia (NASDAQ: NVDA). The tech giant's shares have soared by more than 22,000% over the last decade, generating plenty of shareholder wealth in the process.

That said, with a market cap of $3 trillion, Nvidia is already the third-largest company in the world. Growing concerns about the sustainability of AI hardware spending raise questions about how much more it can realistically rise. Let's dig deeper to find out what the future may hold.

The AI hype cycle is getting long in the tooth

Since the launch of OpenAI's ChatGPT in 2022, tech giants have been scrambling to stay competitive in the market for large language models (LLMs), a type of AI algorithm that can create conversational responses based on a trained dataset. To this end, they have poured billions of dollars into purchasing Nvidia's cutting-edge graphics processing units (GPUs) to train and run these complex programs.

For so-called hyperscalers like Alphabet and Amazon, this spending makes clear business sense because they can "rent out" their AI computing power to start-ups via their cloud computing platforms. However, for other major clients like Meta Platforms (which plans to spend $60 billion to $65 billion largely on AI-related capital expenditures), the potential returns for pouring so much money into Nvidia hardware look weaker.

Meta seems to be trying to stay relevant in an opportunity it has no clear way to monetise. And it might only be a matter of time before the company's shareholders push back against all this speculative spending, which could have otherwise been used for dividends or share buybacks.

Nvidia's operational momentum remains strong

While current AI spending may prove unsustainable in the long run, this challenge has yet to manifest itself in Nvidia's operational results. Third-quarter revenue jumped 94% to $35.1 billion based on massive demand for its high-end data center chips to train LLMs.

Despite selling hardware, its gross margin of almost 75% rivals that of many software companies, helping operating income roughly double to $21.9 billion in the third quarter.

Over the coming quarters, products based on Nvidia's new Blackwell GPU architecture promise to support continued growth and profitability. And so far, there is little evidence that the emergence of low-cost Chinese rival DeepSeek (which claims to have trained an industry-leading LLM on "primitive" H800 chips) is hurting demand for Nvidia's newest chips.

Some industry experts argue that DeepSeek may have inappropriately copied technology from U.S. rivals like OpenAI through distillation — a process that involves transferring knowledge from a more advanced model to a smaller one. If true, this would suggest that Nvidia's cutting-edge GPUs still help create the most advanced LLMs, even if others later copy these models using cheaper chips.

Its valuation is still attractive, but the upside looks limited

With a forward price-to-earnings multiple (P/E) of just 29, the stock is still surprisingly affordable, considering its incredible growth rate. For context, the Nasdaq-100 has an average forward P/E of 31 even though few, if any, of its members rival Nvidia's business expansion.

That said, with a market cap of $3 trillion, it is hard to see Nvidia generating multibagger returns from here, especially considering that current AI hardware spending may begin to diminish over time.

The stock's millionaire-maker days seem to be far behind it. And return-hungry investors should probably look for more under-the-radar ways to bet on the AI opportunity.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Nvidia still a millionaire-maker stock? appeared first on The Motley Fool Australia.

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 Will Ebiefung has no position in any of the stocks mentioned. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool Australia has recommended Alphabet, Amazon, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

If you held on to Nvidia (NASDAQ: NVDA) stock for the last three years, you are probably laughing all the way to the bank. A $10,000 bet made in early 2022 would be worth almost $55,000 today -- an impressive return of 450%. That said, past performance doesn't guarantee future results. And the dynamics that helped Nvidia achieve such remarkable performance could change significantly.

The new Chinese large language model (LLM) DeepSeek is the elephant in the room. It purportedly demonstrated that advanced AI models can be built without outrageous costs, in stark contrast to the strategies used by its American rivals, such as OpenAI, Alphabet, and Meta Platforms. Let's explore how this story could develop over the next three years and beyond.

This isn't just about DeepSeek

While it's easy to blame DeepSeek for all the AI industry's challenges, that might miss the big picture. The core problem is that training LLMs is too expensive relative to their profit potential. While the emergence of a dramatically cheaper Chinese rival brought this problem into the mainstream, industry observers have been discussing it for months.

In June 2024, Goldman Sachs published a report titled "Gen AI: Too Much Spend, Too Little Benefit." The paper suggested that the $1 trillion in capital expenditures tech giants are expected to pour into generative AI hardware and development is unlikely to pay off because of the technology's inherent limitations. It argued that LLMs might not be ideal at solving complex problems that can justify their development costs.

For Nvidia, this problem is distant because it focuses on the pick-and-shovel side of the opportunity -- making the graphics processing units (GPUs) that cloud computing companies use to build their AI computing power (which is then rented to consumer-facing start-ups). However, as these start-ups continue to fail or burn through money (OpenAI lost $5 billion in 2024), it may be a matter of time before chip demand starts to slow.

DeepSeek makes the problem too obvious to ignore

While AI bulls were content to ignore the warning signs of unsustainable industry spending, DeepSeek made the problem too obvious to ignore. With its launch in January, the company's open-source generative AI chatbot quickly became the most downloaded free app in the U.S. on Apple's App Store -- beating out its American rival ChatGPT.

More importantly, DeepSeek's R1 model has similar performance to ChatGPTs o1 despite being developed for $6 million using less advanced Nvidia H800 chips, according to its developers. OpenAI claims DeepSeek may have used its proprietary models to train R1 in a process called "distillation," and the White House's AI and crypto czar David Sacks believes "it is possible" that IP theft occurred during its development.

Over the coming years, it is possible that the U.S. government could intervene on behalf of American AI companies by further restricting chip exports to China (a move that could hurt Nvidia's sales in that country) or try to undermine DeepSeek based on intellectual property enforcement or national security concerns, as was done to TikTok.

But ultimately, it seems like the cat is out of the bag, and even if the U.S. manages to stamp out DeepSeek, other cheaper LLMs could rise to take its place.

The already questionable economics behind big tech's AI chip spending has become even harder to justify.

Where will Nvidia be in the next 3 years?

Over the coming years, investors should expect Nvidia's growth and margins to decline as industry participants realize they don't need its latest (and most expensive) hardware to develop LLMs and other generative AI applications. But while the stock's exponential growth trajectory will likely end, investors shouldn't expect a crash.

With a forward price-to-earnings multiple of just 29, Nvidia shares are surprisingly affordable for a company that grew sales by 94% in its most recent quarter. The low valuation suggests some of Nvidia's long-term challenges are already priced in.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• This ASX stock could be a surprise winner of the AI boom

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet, Apple, Goldman Sachs Group, Meta Platforms, and Nvidia. The Motley Fool Australia has recommended Alphabet, Apple, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

2024 has not been kind to Tesla (NASDAQ: TSLA) shareholders. While the S&P 500 has risen by 21%, the electric vehicle (EV) leader's stock has been on a roller-coaster ride that has left it more or less flat year to date due to competition and consumer fatigue. While the stock still enjoys a premium valuation, it is unclear how much longer it will be able to maintain it unless CEO Elon Musk finds a way to reinvigorate the company.

It's hard to justify Tesla's valuation

Trading at a forward price-to-earnings (P/E) ratio of 85, Tesla stock is valued substantially higher than the broader market's ratio of 24. And its valuation is wildly higher than those of other large U.S. automakers like Ford or General Motors, which have forward P/Es of just 5.3 and 4.7, respectively. In the past, this level of premium could be explained by Tesla's unique EV focus and its higher margins. But those justifications just don't hold as much water anymore.

Legacy automakers have gone all-in on electric vehicles, and they are rapidly gaining market share. For example, Tesla's third-quarter deliveries grew by only 3% year over year to 439,975 units (the company doesn't break down its business by country, but the U.S. is its largest market). For comparison, GM's U.S. deliveries of EVs surged by 60% to 32,095.

Tesla's margin advantage is also starting to fade. In the second quarter, operating margins fell to just 6.3% from 9.6% a year earlier. And the company could face even more pressure from vertically integrated Chinese rivals like BYD (which is also a top EV battery manufacturer) that might be able to undercut its prices in key markets such as Asia and Europe.

BYD is considering opening a second plant in Europe in 2025 to produce affordable EVs like its Seagul compact car, which is expected to cost less than $21,550 on the Continent and less than $10,000 in China.

Can cheaper cars save the day?

Tesla's automotive business doesn't look capable of justifying its premium valuation. And over the next three years, Elon Musk may need to pull off a major pivot to software to keep the stock from crashing. The good news is that management seems keenly aware of what needs to be done.

This week, Tesla will host "Robotaxi Day," a much anticipated live event where it will unveil its newest ideas, including a new compact EV expected to launch for around $25,000 in 2025. This much-anticipated vehicle will turn one of Musk's most ambitious goals into reality. And it could also reignite Tesla's growth by putting EV ownership within reach of the masses.

But while cheaper cars could be great for Tesla's unit sales volume, they probably won't do much to improve its margins. And instead of creating an economic moat, they could trap the company in a continuous race to the bottom as other companies follow its lead. Ford is reportedly working on its own affordable EV platforms through a semi-autonomous "skunkworks" team.

Tesla will need to become a tech company

The most important aspect of Robotaxi Day will naturally be Tesla's update on its self-driving car program. According to analysts at McKinsey & Company, the market for ride-sharing services provided by autonomous vehicles could reach $300 billion to $400 billion in revenue by 2035, with much of that money likely going to high-margin services and licensing. If Tesla can successfully deliver the tech that robotaxi services will require, that could easily justify its current valuation and possibly send it higher.

That said, these are speculative projections. Tesla will have to compete with other well-capitalized rivals like Alphabet's Waymo and General Motors' Cruise, which are also working on self-driving technology. Investors who buy Tesla stock at current prices will need to have a lot of confidence in management's ability to navigate an incredibly uncertain situation. And it might make sense for them to wait for more information before buying.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Should you buy Tesla stock before Robotaxi Day? appeared first on The Motley Fool Australia.

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Will Ebiefung has no position in any of the stocks mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Alphabet and Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended General Motors and has recommended the following options: long January 2025 $25 calls on General Motors. The Motley Fool Australia has recommended Alphabet. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Following the 2022 launch of OpenAI's ChatGPT, generative artificial intelligence (AI) has taken Wall Street by storm. Few companies have benefited more than Nvidia (NASDAQ: NVDA) -- the chipmaker that creates the hardware needed to make this new technology possible. An explosive second-quarter earnings report suggests its boom is far from over.

Nvidia's revenue soared 122% year over year to $30 billion, compared to analysts' expectations of $28.7 billion. Growth was driven by demand for advanced graphics processing units (GPUs) like the H200, which helps train and run AI algorithms. The company's bottom line also remains buoyant, with net income soaring 168% to $16.6 billion.

How much longer can Nvidia's rally continue? Let's dig deeper into what the next 12 months may have in store for this technology leader.

The bear case

Nvidia is becoming an increasingly polarizing stock. While few would deny its operational momentum, we can question the AI industry buying up its pricy hardware. So far, things aren't squaring up.

While consumer-facing large language models (LLMs) are fun to play with, they seem far from a transformational tech megatrend. And even if these algorithms could become smart enough to make a big splash, their monetization potential remains unclear because of competition from free, open-source options like Meta's Llama or Elon Musk's Grok.

Analysts at Goldman Sachs (NYSE: GS) highlight these alarming dynamics. In a June report, they suggest that the roughly $1 trillion tech giants invested in AI capital expenditures might never pay off. If Nvidia's clients don't start making money, they will eventually stop buying the company's expensive chips, leading to sales declines and margin erosion.

With a trailing price-to-earnings (P/E) multiple of 59 compared to the Nasdaq-100 average of 32, Nvidia's valuation prices in significant future expectations. And if these don't materialize, shares could crash.

The bull case

In the best-case scenario, Nvidia's long-term rally is only just beginning. According to analysts at Bloomberg, the generative AI industry could expand at a compound annual growth rate (CAGR) of 42% to $1.3 trillion by 2032 as investment shifts from training infrastructure to consumer use cases like software and advertising. If this is true, Nvidia's current sales are only a drop in the bucket compared to its long-term potential.

Management is also pushing back against the suggestion that its clients won't profit from their AI investments.

Nvidia CFO Colette Kress claims cloud computing providers are seeing an "immediate and strong return" on AI investment. On the earnings call, Kress claimed that $1 spent on Nvidia hardware could generate $5 over the next four years. That number rises to $7 for the company's newest products, like the HDX H200 AI accelerator. However, while robust demand suggests Nvidia's cloud clients see value in its hardware, Kress's claims might be a little misleading.

These companies still serve the infrastructure side of the AI market. They buy Nvidia GPUs to rent out to AI start-ups. If the consumer-facing start-ups can't monetize the technology, they will eventually stop renting GPUs and the cloud service providers will stop buying them.

Is Nvidia stock a buy?

Nvidia is a great company because it sells products the market wants. And its stock will probably continue soaring in the near term. However, the foundations of long-term demand for AI GPU products are shaky.

This hype-driven industry could be in for a reckoning over the next 12 months if the software side of the opportunity doesn't start showing more progress toward monetization. Investors should consider taking profits or avoiding Nvidia stock until more information becomes available. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Nvidia stock be in 1 year? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Vanguard ETFs vs. Betashares ETFs: Who's coming out on top?
• Forget Nvidia. This little-known ETF is up more than 3,600% in 2026
• Should I buy the iShares Global 100 ETF (IOO) now?
• You don't need to own Nvidia to invest in AI – Here are the best Aussie artificial intelligence shares
• This ASX stock could be a surprise winner of the AI boom

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

As I expected, Nvidia Corp's (NASDAQ: NVDA) rocket-ship rally is beginning to stall, with shares down by roughly 21% over the last 30 days. And while Nvidia is still a great company, the combination of a high valuation and low diversification leaves room for continued downside. Let's explore how recession fears and artificial intelligence (AI) fatigue could play out over the next three years.

Economic storm clouds gather

It is impossible to predict a recession for sure, but data is pointing toward a possible slowdown in economic activity. In July, the U.S. only added 114,000 jobs compared to expectations of 175,000, while the unemployment rate hit 4.3% — its highest level since 2021. And while the Federal Reserve is expected to stimulate growth by cutting interest rates, it might be too little too late to avoid a so-called hard landing. Rate cuts can be a helpful tool, but they can't magically fix every problem in a shaky economy.

For Nvidia, a recession could be a disaster. While the company has dominated the AI industry by producing cutting-edge graphics processing units (GPUs) needed to run and train these complex conversational algorithms, it can't prevent its business model from being undermined by macroeconomic factors outside its control.

Nvidia sells luxury products

Nvidia's business has historically been cyclical. When money is tight, consumers are less likely to spring for expensive computer upgrades, instead opting for cheaper used options — or foregoing them altogether. While a shift to enterprise-level hardware shields Nvidia from the whims of PC gamers, similar dynamics could also arise in the market for AI chips.

Analysts are beginning to sound the alarm about the billions being spent on AI hardware with limited results on the bottom line. Goldman Sachs analyst Jim Covello puts the situation in stark terms, stating: "Despite its expensive price tag, the technology is nowhere near where it needs to be in order to be useful. Overbuilding things the world doesn't have use for, or is not ready for, typically ends badly."

While tech companies are content to speculate on unprofitable AI investments when the economy is good, the current level of spending may not hold up when conditions weaken. During recessions, businesses usually downsize their non-essential and non-profitable segments first, and right now, AI seems to fit solidly into that troubled category.

Nvidia may be underdiversified

Nvidia's first-quarter revenue jumped 262% to $26 billion, driven by data-center chip sales, which rose by an eyewatering 427% to $22.6 billion. But while this growth is impressive, it puts most of Nvidia's financial eggs in one basket. Data-center sales now represent 87% of total revenue driven by a few flagship products, such as the A100 and H200, which power typical large language models (LLMs) such as ChatGPT.

Other segments, like gaming (10% of revenue) or professional visualization (2% of revenue), have faded into irrelevance in the current market, making Nvidia vulnerable to any potential slowdown in demand for AI accelerator chips.

Is Nvidia stock a buy?

After rising by over 450% over the last three years, Nvidia stock has historically been a spectacular investment. And there is still a lot to love about the company because of its industry leadership in the global-chip industry. That said, shares seem to have peaked for now.

With a forward price-to-earnings (P/E) multiple of 42, Nvidia's valuation prices in future growth that may not materialize, especially if the U.S. economy begins to slow and enterprise clients start to rethink their massive AI chip purchases. Nvidia looks overexposed to this fragile industry and may experience a major correction in the coming years.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Nvidia stock be in 3 years? appeared first on The Motley Fool Australia.

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• Vanguard ETFs vs. Betashares ETFs: Who's coming out on top?
• Forget Nvidia. This little-known ETF is up more than 3,600% in 2026
• Should I buy the iShares Global 100 ETF (IOO) now?
• You don't need to own Nvidia to invest in AI – Here are the best Aussie artificial intelligence shares
• This ASX stock could be a surprise winner of the AI boom

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

After soaring a whopping 194% over the last 12 months, Nvidia (NASDAQ: NVDA) stock has richly rewarded its near-term investors as it rides a wave of explosive demand for AI hardware. But so far, this industry has been more hype than substance, and Wall Street is beginning to notice. Let's dig deeper into what the next year could have in store for Nvidia as hype fades and fundamentals start to play a bigger role.

Analysts are starting to sound the alarm

In late 2022 and early 2023, financial media was awash with grandiose visions for the future of AI. PwC expected it to add $15.7 trillion to the global economy by 2030. And Bloomberg Intelligence projected the market to be worth $1.3 trillion by 2032 as the new technology was applied to digital ads, software development, and other services. But now, some on Wall Street are beginning to sing a different tune.

In June, Goldman Sachs released a report suggesting that the roughly $1 trillion in capital expenditures (capex) expected to pour into AI hardware over the coming years may exceed the potential returns. And they have a point.

So far, most consumer-facing generative AI start-ups are generating significant losses. And over the longer term, free, open-source large language models (LLMs) could also commodify the technology, eroding the economic moats for early leaders. This would hurt Nvidia because if its software clients don't profit from their AI investments, eventually, they will stop spending. But so far, there is no evidence of a slowdown.

The cracks haven't appeared yet

The good news for Nvidia shareholders is that if the company faces impending doom, there are no signs of it yet. The chipmaker's rocket-ship rally is still backed by incredible operational performance.

Second-quarter revenue doubled year over year to $13.51 billion, driven by a 171% increase in the data-center segment where Nvidia sells its highest-end graphics processing units (GPUs), like the H100 and A100 used to train and run AI algorithms. For now, supply seems to be outstripping demand. And the company's gross margin increased from 64.6% to 70.1%, while its profits jumped 843% to $6.19 billion.

That said, the AI boom is getting a little long in the tooth. Over the next 12 months, Nvidia will face difficult comps as it tries to maintain growth against already high prior-year numbers. This could eat away at the stock's valuation, which seems to be pricing in continued expansion. With a forward price-to-earnings (P/E) ratio of 49, Nvidia trades at a significant premium over the Nasdaq 100's forward estimate of around 30.

Is Nvidia stock a buy?

It can be tempting to bet on Nvidia because of its practically exponential stock-price growth and the recent 10-for-1 stock split which makes the $3.18 billion company look deceptively affordable. However, investors who buy now are very late to the party and run the risk of holding the bag if things go wrong.

Over the next 12 months and beyond, the AI industry may face a reckoning as hype begins to fade and consumer-facing applications struggle to show enough revenue and earnings potential to justify the industry's spending on chips and other hardware. These challenges could put Nvidia's valuation at risk. And investors may want to stay clear for now.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Nvidia stock be in 1 year? appeared first on The Motley Fool Australia.

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• You don't need to own Nvidia to invest in AI – Here are the best Aussie artificial intelligence shares
• This ASX stock could be a surprise winner of the AI boom

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Share prices of Tesla (NASDAQ: TSLA) are up roughly 21% in five days since it was reported that second-quarter vehicle deliveries beat Wall Street's expectations. However, the electric vehicle (EV) manufacturer's longer-term downward trend remains in effect as it grapples with high interest rates, competition, and other macroeconomic factors.

Could the second-quarter deliveries indicate a sustainable recovery, or will Tesla continue fading out? Let's explore what the next five years could have in store for this innovative EV leader.

Second-quarter deliveries beat expectations -- or did they?

Tesla investors don't have to wait until earnings (expected to be released this month) to get updated on the company's performance. Management typically releases production and delivery data along with other vehicle manufacturers on a quarterly basis (it used to be released monthly). And the much-anticipated second-quarter numbers were no exception.

With 443,956 cars delivered in the second quarter, Tesla beat Wall Street's consensus forecast of 439,000. But this is still down 4.8% from the prior-year period and represents the second consecutive quarter of declining deliveries after a 13% year-over-year drop in the first quarter.

The better-than-expected delivery numbers sparked a double-digit percentage rally in the stock price, but the automaker is not out of the woods yet. The extent of the weakness could be revealed when the company releases its full quarterly report.

Several key problems might come up. First is pricing. Automakers can drive volume growth by lowering prices. But this can come at the expense of revenue per car sold and margins. For Tesla, this could pose a big problem because its previously high margins are the main thing differentiating it from its uninspiring mass-market rivals.

In the first quarter, its operating margins fell from 11.4% to 5.5%. And continued declines could turn the company into just another automaker.

Musk to the rescue?

With a price-to-sales (P/S) multiple of 6.33, its stock trades at a significant premium over the typical large U.S. automaker. For context, Ford Motor Company and General Motors trade for a P/S of just 0.3 and 0.36, respectively. And if Tesla becomes just another car company, it could lose much of its $560 billion valuation. Shareholders are betting that CEO Elon Musk won't let this happen.

Fresh off securing an equity-based pay package worth $44.9 billion, Musk is incentivized to do everything possible to boost the stock price. He seems to be downplaying the automotive opportunity in favor of new growth drivers like robotics and artificial intelligence (AI).

The company is working on Dojo, a supercomputer designed to help train its machine-learning models for full self-driving (FSD). While Tesla isn't the only company tackling this effort, it has some advantages because of the vast amount of user data it can gather from its customers with FSD software installed in their cars. Musk says its robotaxi will be revealed on Aug. 8, along with its next-gen vehicle platform.

If the robotaxis are consumer-ready, they could unlock a new nonautomotive revenue stream for Tesla, while putting it in a prime position to explore other AI uses like warehouse automation or possibly even humanoid robots over the next five years and beyond.

Is the stock a buy?

Tesla has once again become a highly speculative company. If current trends continue, its previously high-margin EV business could become commodified over the next five years amid rising competition and lower pricing power. This isn't enough to justify the stock's forward price-to-earnings (P/E) ratio of 57 compared to the Nasdaq Composite's average P/E of 32.

Investors who buy the stock now are betting on Elon Musk and his ability to transform the company into more than just an automaker through AI and robotics. This is a tall order. And the controversial executive has a track record of overpromising and underdelivering.

With that said, Musk has rescued Tesla from the brink on several occasions, so there is good reason for the market to have some faith in him. The stock looks like a hold pending more information.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Tesla stock be in 5 years? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Will Ebiefung has no position in any of the stocks mentioned.  The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Tesla. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended General Motors and has recommended the following options: long January 2025 $25 calls on General Motors. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

If you put $10,000 in Nvidia (NASDAQ: NVDA) stock 10 years ago, you would have $2.74 million today -- a life-changing return of over 27,400%. Over that time frame, the company has experienced several boom-and-bust cycles based on demand for its graphics processing units (GPUs). Let's dig deeper into what the next decade could have in store.

A history of boom and bust cycles

Historically, Nvidia has experienced several boom-and-bust cycles based on macroeconomic factors and industry dynamics outside its control. Soon after its initial public offering (IPO) in 1999, the company enjoyed explosive growth based on demand for its GPUs for personal computers and video game consoles like Microsoft's Xbox.

These are now somewhat mature and highly cyclical markets because they rely on nonessential discretionary spending that can be cut in challenging economic conditions. But by 2010, Nvidia was rescued by a brand-new industry: cryptocurrency mining.

Blockchain platforms like Bitcoin (and previously Ethereum) run on a system called proof-of-work, where transactions are validated, and new blocks created by solving complex computational puzzles (mining). Nvidia's consumer GPUs were ideal for these tasks, leading to booming sales for much of the 2010s and some of the 2020s.

But now, Nvidia has finally gotten its big break with generative artificial intelligence (AI), an opportunity so massive, it has made the company's other business verticals practically irrelevant.

Nvidia over the next 10 years

For better or worse, Nvidia has become almost a pure play on data center AI hardware, with its other segments fading into irrelevance. In the first quarter, data center sales represented 87% of the company's $26 billion in revenue, while the once-core gaming and PC segment (which includes cryptocurrency mining rigs) has fallen to just 10%.

Nvidia's poor diversification will likely worsen because the data center segment is growing significantly faster than its other businesses. This dynamic makes the company vulnerable to a potential slowdown in demand for AI chips, which is a significant risk over the coming decade.

Even if the overall industry meets analysts' lofty expectations (Bloomberg expects generative AI to be worth $1.3 trillion by 2032), there may eventually be chip overcapacity as data centers accumulate massive stockpiles of GPUs and feel less need to update to the latest versions. And like in Nvidia's previous boom-and-bust cycles, used chips could erode the market for its new products, leading to lower pricing power and margins.

That said, Nvidia is a company that constantly reinvents itself. Few would have expected the video game chipmaker to dominate cryptocurrency mining and eventually generative AI. In the future, new markets such as self-driving car technology, robotics, or warehouse automation could reignite demand for Nvidia's products and rediversify its customer base.

Is Nvidia still a buy?

Nvidia stock still looks capable of outperforming the S&P 500 over the next 10 years -- especially as the AI industry expands out of simple chatbots into more advanced-use cases. That said, the stock has become incredibly risky in the near term because of its overreliance on data center GPUs and the threat of overcapacity in its market.

Investors who buy now should be ready to ride through a potential correction. But the better idea might be to hold and wait for more information.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Where will Nvidia stock be in 10 years? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Should I buy the iShares Global 100 ETF (IOO) now?
• You don't need to own Nvidia to invest in AI – Here are the best Aussie artificial intelligence shares
• This ASX stock could be a surprise winner of the AI boom

The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin, Ethereum, Microsoft, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool Australia has recommended Microsoft and Nvidia. The Motley Fool Australia has positions in and has recommended Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Stock splits can be exciting for retail investors, particularly those whose brokerages might not offer them the option of purchasing fractional shares. I have lost count of the number of non-finance people suddenly asking me about Nvidia (NASDAQ: NVDA) stock now that it's trading for "just" $130 a share.

But while splits can make a stock appear cheaper, they have no impact on a company's valuations -- how the market prices it relative to sales, earnings, etc. -- nor on its market cap, which is the value of all its outstanding shares combined. In the case of Nvidia, that market cap is $3.2 trillion, making it the third-largest company in the world today, just a hair behind the one that makes iPhones.

Is Nvidia stock still a buy at its current lofty market cap? Here are two reasons to continue hitting the buy button and one reason to consider jumping ship. 

Reason No. 1 to buy: The artificial intelligence industry is just getting started

It has only been around two years since OpenAI took the world by storm with ChatGPT, a generative artificial intelligence (AI) chatbot capable of producing high-quality responses to user queries based on training data. Analysts are feverishly optimistic about the AI industry's potential, with Bloomberg Intelligence estimating it could be worth $1.3 trillion by 2032.

If that forecast proves close to accurate, this will be an incredible opportunity for Nvidia, which is the leading maker of the specific types of powerful graphics processing units (GPUs) needed to run and train these advanced algorithms. Currently, it holds a market share of more than 80% in that hot niche, where demand is outstripping supply.

While Nvidia will face growing competition from rival chipmakers such as Advanced Micro Devices (NASDAQ: AMD) and Intel, it's protecting its market share via software solutions like CUDA (Compute Unified Device Architecture), a computing platform and programming interface that's bespoke for use with its hardware, and by constantly improving its offerings. According to CEO Jensen Huang, the company will henceforth release a new family of updated AI chips every single year (up from its prior pace of once every two years), making it even harder for rivals to keep up.

Reason No. 2 to buy: Nvidia isn't overvalued relative to fundamentals

The second bullish fact about Nvidia is its valuation. Despite rising by over 3,000% in the last five years, shares are still reasonably priced relative to the company's remarkable growth rate.

With a forward price-to-earnings (P/E) multiple of just 48, Nvidia's shares are not much more expensive than other popular AI hardware stocks like AMD, which has a P/E of 47. To put this in context, in the first quarter, AMD's sales grew by just 2% year over year, while Nvidia's exploded by 262%.

This valuation suggests Nvidia's stock could have more room to run if the AI industry lives up to analysts' expectations. But hold your horses -- there is one big risk factor new investors should be aware of.

A reason to sell: Its uncanny resemblance to Cisco Systems

Cisco Systems (NASDAQ: CSCO) is a computer hardware company that sold the routers and switches needed to build out the internet in the late 1990s. It was the "picks and shovels" way for investors to bet on what the smart money saw as a transformative new industry. And by the peak of the dot-com bubble in 2000, Cisco's market cap had hit $500 billion. Then the bubble burst, and it dropped by a staggering 88% within two years. The stock still hasn't recovered to its previous highs.

Investors should take this as a cautionary tale, because Nvidia occupies a similar role in the AI space today, and any hit to its growth rate or pricing power could lead to a rapid collapse in its valuation, just like what happened to Cisco. While Nvidia investors have a lot to be excited about, they should also be aware of the potential risks this company faces before buying the stock, especially at its current valuation. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post 2 reasons to buy Nvidia after the stock split (and 1 reason to sell) appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Vanguard ETFs vs. Betashares ETFs: Who's coming out on top?
• Forget Nvidia. This little-known ETF is up more than 3,600% in 2026
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• You don't need to own Nvidia to invest in AI – Here are the best Aussie artificial intelligence shares
• This ASX stock could be a surprise winner of the AI boom

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Advanced Micro Devices, Cisco Systems, and Nvidia. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Intel and has recommended the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool Australia has recommended Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

With shares up by an eyewatering 25,000% over the last 10 years, it's no surprise that Nvidia (NASDAQ: NVDA) relies on stock splits to keep its equity price manageable for smaller investors who may not have access to fractional shares. The most recent of these went into effect on June 7 and gave investors 10 shares of Nvidia for each one they previously owned -- bringing its stock price to around $126 at the time of writing.

The stock split did nothing to change Nvidia's $3 trillion market cap, which represents the value of all its shares combined. However, some market participants are hopeful that the lower share price could make Nvidia's equity more liquid and help it maintain its explosive bull run. Let's dig deeper to decide if this technology giant is still a buy.

What is Nvidia's bull thesis?

If the generative artificial intelligence (AI) industry can be likened to the California gold rush, Nvidia would be selling the picks and shovels every miner needs to dig for gold. The company's industry-leading graphics processing units (GPUs) are crucial for running and training complex AI algorithms. And this has led to explosive growth and margins.

Nvidia's first-quarter revenue increased 262% year over year to $26 billion, driven by sales of data center chips, such as the H100. And net income jumped 628% to $14.88 billion.

Considering this elevated growth rate, Nvidia's stock is still reasonably valued at a forward price-to-earnings (P/E) ratio of around 47. For comparison, rival chipmaker Advanced Micro Devices has the same forward P/E despite only growing sales by 2% in its first quarter. That said, Nvidia's stock might not be as cheap as it looks on the surface.

Nvidia is not as cheap as it looks

Over the next few years, Nvidia will face incredibly challenging comps. After enjoying booming sales over the previous 12 months, it will be difficult for the company to continue growing its revenue relative to extremely high prior-year numbers. And this might be a big reason why the stock's forward valuation is so low relative to growth.

Demand could become another problem. While Nvidia's picks-and-shovels take on the AI industry protects it from competition on the consumer side of the industry, it wouldn't be shielded from an industrywide slowdown, which could occur if its clients aren't able to generate enough cash flow to justify their spending on Nvidia chips.

The long-term prospects of AI look undeniably bright. But there could be many ups and downs before it reaches its full potential -- just like other major technologies like the internet, electric vehicles, or even blockchain.

Buy with caution

For many retail investors, Nvidia's stock split will be a powerful psychological encouragement to buy the stock. At just $120 per share, the mammoth company now looks relatively small. And those who were previously intimidated by its four-digit stock price may now be encouraged to finally pull the trigger and hit the buy button.

But while Nvidia certainly has a bright future as the AI industry develops, investors who buy the stock now are late to the party. And this brings the risk of being left holding the bag if things go wrong.

Over the next few years, Nvidia will face more difficult comps, which could cause top- and bottom-line growth to slow down, even if the AI industry remains strong. While shares still look capable of outperforming over the long term, investors should remain aware of the significant risks they are taking by buying a company that has already risen so far so fast.

Historically, no stock has grown exponentially forever. And Nvidia will likely face a correction at some point. Be careful out there. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Is Nvidia stock a buy after the 10-for-1 stock split? appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Vanguard ETFs vs. Betashares ETFs: Who's coming out on top?
• Forget Nvidia. This little-known ETF is up more than 3,600% in 2026
• Should I buy the iShares Global 100 ETF (IOO) now?
• You don't need to own Nvidia to invest in AI – Here are the best Aussie artificial intelligence shares
• This ASX stock could be a surprise winner of the AI boom

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Nvidia. The Motley Fool Australia has recommended Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

No company exemplifies the generative artificial intelligence (AI) boom more than Nvidia (NASDAQ: NVDA). As the market leader in designing and retailing advanced data center AI chips, the tech giant has enjoyed skyrocketing revenue and earnings as businesses scramble for its hardware to build and train large language models. Let's discuss Nvidia's third-quarter earnings and what they could mean for its future.

Nvidia's third-quarter earnings were a slam-dunk success

Nvidia's third-quarter earnings highlight its impressive operational momentum. Revenue soared 206% year over year to a record of $18.12 billion, driven primarily by the data center business, which involves the sale of advanced graphics processing units, such as the A100 (used to train OpenAI's ChatGPT) and its more advanced successor, the H100. All in all, this segment expanded 279% year over year to $14.51 billion.

Nvidia's bottom line also increased sharply, with net income jumping 12-fold to $9.2 billion due to rising sales of its high-margin computer hardware. With limited competition, Nvidia isn't under much pressure to lower prices to keep its 80% market share in AI chips.

Image source: The Motley Fool. OEM = original equipment manufacturer.

Nvidia can maintain its strength with its relentless technical innovation. This November, the company announced its new HGX H200, designed to make AI computing even faster.

It also enjoyed an impressive recovery in its gaming segment, which saw sales jump 81% year over year to $2.86 billion. The gaming results suggest the consumer market may finally be bouncing back from macroeconomic challenges, like inflation and high interest rates, which could mean more growth ahead.

I wouldn't worry about the competition

Nvidia's massive AI chip business isn't escaping the notice of rivals. Other companies, like AMD, Amazon, and even Tesla, are working on their own data center chips to generate revenue or reduce their reliance on third-party hardware suppliers for AI training. Of these companies, AMD is likely the biggest threat because it expects to sell its AI chips to other companies instead of retaining them for internal use.

This year, the Nvidia rival released its flagship M1300 AI chip designed to compete with Nvidia's industry-leading H100 for training AI-related models. But while this new product will introduce competition, Nvidia should retain its lead because of its faster update cycle.

While AMD expects to ramp up M1300 production in its yet-unreported fourth quarter of 2023, Nvidia is already in full production of the H100, with a whopping 500,000 chips expected to ship this year -- rising to between 1.5 million and 2 million in 2024 By being faster to market at scale, Nvidia can ensure it maintains a technical lead over competing products, ensuring better pricing power and profit margins.

Priced for perfection? Not so much

Despite the impressive results, Nvidia's stock actually fell around 3% on Wednesday following the earnings announcement. According to Bloomberg, this has much to do with overvaluation, with some analysts believing the stock is already priced for perfection. But the situation is more complicated than it looks on the surface.

Granted, with a price-to-sales (P/S) ratio of 38, Nvidia is significantly pricier than the S&P 500's average of just 2.5. But that only tells half the story. The P/S ratio is a backward-looking metric comparing the current market cap to the previous 12 month's revenue. For a fast-growing company like Nvidia, this metric doesn't properly account for its growth rate or unusually high net income margin (51% in the third quarter).

With all that in mind, forward price-to-earnings (P/E) is a better way of valuing Nvidia because it uses projected future net income. And with its forward P/E of just 32 (compared to the market average of 25), Nvidia's stock still looks reasonably valued, considering its epic growth rate and potential to continue dominating the AI opportunity. It's not too late for investors to bet on its long-term success. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

The post Nvidia earnings: 3 reasons this artificial intelligence (AI) stock is still a buy appeared first on The Motley Fool Australia.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• Vanguard ETFs vs. Betashares ETFs: Who's coming out on top?
• Forget Nvidia. This little-known ETF is up more than 3,600% in 2026
• Should I buy the iShares Global 100 ETF (IOO) now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Amazon, Nvidia, and Tesla. The Motley Fool Australia has recommended Amazon and Nvidia. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.