Is It Too Late to Buy Nvidia Stock?

Although it briefly lost its crown to Apple (NASDAQ: AAPL) in July, chipmaker Nvidia (NASDAQ: NVDA) is once again reigning supreme as the largest company in the world by market capitalization.

It's also the only company in the world currently worth over $5 trillion.

But Nvidia has had a bit of a rocky year. It's only barely keeping pace with the S&P 500 in terms of growth. Both are up 17.6% over the past year. Is that a sign that Nvidia's high-growth days are behind it?

In other words, is it too late to buy Nvidia stock? Here's what investors need to know.

Image source: Nvidia.

Massive companies can still grow further

Just because a company is the biggest of the big doesn't necessarily mean it's done growing, or even done growing quickly.

Apple, the only current challenger for Nvidia's largest-company crown, is a great example of this. In 2018, it became the first U.S. company to reach a $1 trillion valuation, and investors questioned how much higher its price could possibly go.

As it turns out, quite a bit higher. It took just two years for Apple to double in size and reach a $2 trillion valuation in 2020. Since then, it's more than doubled again, with a $4.9 trillion valuation today.

Imagine if you'd sold your Apple shares just eight years ago because you thought it couldn't go much higher. You'd have missed out on massive, market-crushing gains.

Fundamentals are still important

Of course, for every Apple and Nvidia that have kept growing, even at a massive size, there's a company that's seen its growth stall. And the larger a company gets, the harder it can be for it to maintain strong growth. Eventually, it can simply run out of addressable market.

The good news is that this doesn't seem to be happening to Nvidia. Over the last five years, Nvidia's revenue has grown 1,150%, and its net income has soared 2,250%. Meanwhile, its stock is up "just" 821%.

That means that from a valuation perspective, Nvidia's shares are much cheaper than they were five years ago. Its current trailing price-to-earnings (P/E) ratio of 26.7 is at a five-year low. It's also much lower than Apple's trailing P/E of 38.2 (lower is better).

Of course, if Apple were expected to grow faster than Nvidia, it's not surprising that investors would be willing to pay more of a premium for Apple shares. But Apple's revenue is only up 27.4% over the past five years, and its net income has only gone up 36.2%.

That probably means investors are worried about Nvidia's current revenue and profit streams, which are reliant on sustained AI infrastructure spending.

There are no signs that the current AI spending boom is fizzling, but even if it did, Nvidia's top-of-the-line GPUs would likely find a market powering the next big technological advance.

All things considered, Nvidia still looks very much like a company worth buying for the long term.

John Bromels has positions in Apple and Nvidia. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.