3 Reasons Why I Finally Bought Nvidia Stock Last Week

As a growth stock investor for more than three decades, I have a sad thing to admit. Never have I ever -- until early last week, at least -- owned Nvidia (NASDAQ: NVDA). I'm a shareholder now. A few trading days have passed, so I can reflect on the rite of passage.

Your normal reaction may be that I'm too late. The big gains have already been made with Nvidia now as the king of the market cap hill. You might even say that I'm the Ted McGinley of investors, hopping onto a hot property just as it's about to get canceled. But have you seen him on Shrinking? He's fantastic.

Obviously, I don't think I'm late to the Nvidia party. Will the stock be a 12-bagger in the next five years, the way it has been in the last five? Probably not, but it doesn't mean that Nvidia can't beat the market by a comfortable margin in the next few years. If you would be kind enough to indulge me, let me go over the reasons why I chose to become an Nvidia stock investor last week.

Image source: Getty Images.

1. The AI revolution isn't going away

Folks have some pretty polarizing opinions about artificial intelligence these days. Some fear it's coming for their jobs. Creative people are concerned that human artistry is being squeezed out by algorithmic models. In my opinion, there is more good than harm coming from the revolution.

Generative and agentic AI are making more things possible. There was plenty of teeth gnashing when the TV, PC, and smartphone came out. Each one eventually raised the bar of what was possible for entertainment, enlightenment, or automation. AI is ready to take all of that on, and then some.

Unfortunately for Nvidia stock, it isn't alone. Nothing draws a crowd like success. Tech giants and upstarts want to become the next Nvidia. China is encouraging its homegrown tech companies to develop the next great AI chip.

Fortunately for Nvidia investors, if someone takes out the leader, it will be fairly evident through a dramatic slowdown in its financial updates. For now, the 73% revenue growth that Nvidia posted is its latest check-in is its strongest year-over-year jump in more than a year. You don't throw in the towel when your fighter is still landing punches.

2. Nvidia is cheaper than you think

It's been five months since Nvidia hit its last all-time high. It's currently trading 21% lower. That's not so bad in today's volatile market. Many tech stocks have taken bigger hits. I know I own a few names that are nowhere close to their 2021 peaks.

Nvidia has been allergic to prolonged downturns, but that doesn't mean it's expensive. In fact, here's a chart that may shock you. I already mentioned that Nvidia has jumped 12-fold over the past five years. It's up 47% from where it was a year ago, a six-bagger in just three years. Check out Nvidia's trailing P/E multiple over those same five years.

NVDA data by YCharts.

The only thing moving faster than Nvidia stock itself has been its bottom-line performance. You might wonder whether Nvidia, trading at 34 times its earnings over the past four quarters, is cheap. The better question is what Nvidia will earn in the future. You're going to like the answer.

3. The future is bright for Nvidia

A lot has happened over the past year. Nvidia has faced Chinese trade restrictions, margin-thinning deals with its own government, and other near-term concerns. The climate for AI stocks has become more competitive. A panoramic perspective in the rearview mirror is nice, but it's no match for what you can see through the windshield.

Analysts see Nvidia's revenue and earnings per share soaring 71% and 74%, respectively, in its new fiscal year. The stock is now trading for 20 times this year's projected earnings and 15 times next year's target. Nvidia stock can jump almost 70% in the next 12 months, and it will still be cheaper than it's been in six years.

A final point worth making is that these Nvidia stock forecasts keep inching higher. Three months ago, if Nvidia were trading at today's price, it would be trading at 22 times forward earnings instead of 20. With estimates seemingly perpetually coasting higher, the biggest tool on the side of Nvidia investors -- including brand-new ones like me -- is time.

Rick Munarriz has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.