Nvidia Stock: Buy at the High?

Nvidia (NASDAQ:NVDA) has been one of the biggest winners of the artificial intelligence (AI) revolution so far. And it's very easy to understand why. The tech giant is a designer of chips that power crucial AI tasks -- and Nvidia's chips, known as graphics processing units (GPUs), are the fastest around. Since companies running AI workloads are highly focused on speed, they've rushed to Nvidia.

All of this has generated explosive earnings growth at the tech powerhouse and driven market cap and the share price to record levels. Last year, Nvidia became the first company to reach $4 trillion in market value -- and it's kept marching higher, now well surpassing $5 trillion and maintaining its position as the world's most valuable company.

Meanwhile, the stock is on track for a 25% gain this year and, during trading last week, reached its highest level ever. Nvidia may seem like a no-brainer buy, but some investors have worried that weakness in the general economic environment or any slowdown in AI infrastructure spending could hurt the stock. Considering the full picture, is Nvidia stock a buy today as it trades close to its highest ever? Let's find out.

Image source: Getty Images.

From video games to AI

First, we'll take a step back in time to catch up on the full Nvidia story. This company opened its doors more than 30 years ago, and initially generated most of its revenue from the video gaming industry. But it became clear that the GPU could serve a wide range of markets, and to make that happen, Nvidia launched parallel computing platform, CUDA, back in 2006.

Then, about a decade ago, the AI opportunity emerged. Before this reached the radar screen of the general public, Nvidia was already designing its GPUs for AI. And, as the saying goes, the rest is history. This early entry in AI helped Nvidia develop a close relationship with customers, a keen knowledge of the market -- and this, along with the company's commitment to innovation, makes it very difficult for a rival to unseat this leader. Nvidia has pledged to update its GPUs on an annual basis, and it's following through on this, with Blackwell and Blackwell Ultra launched in recent years and the current release of the Vera Rubin system now unfolding.

In spite of investors' worries about AI spending and demand, the message from Nvidia, other chip companies, and cloud service providers has been clear: Demand is soaring, suggesting that the revenue opportunity remains strong.

Is Nvidia stock expensive right now?

Still, with Nvidia trading around its highest ever, is now really a good time to buy the stock? It's important to note that the stock price itself, at this high level, doesn't necessarily mean that Nvidia is expensive. In fact, the company's valuation, when considering forward earnings estimates, is pretty cheap. And at the same time, revenue is higher than ever and expected to keep climbing.

NVDA PE Ratio (Forward) data by YCharts

Nvidia brought in more than $215 billion in annual revenue in the last fiscal year, and analysts predict that it will rise to more than $411 billion in the current fiscal year.

Nvidia's potential in the CPU market

At the same time, as mentioned, demand for GPUs remains strong, and Nvidia is now entering the stand-alone CPU market -- CPUs are seen as playing a major role in agentic AI. And this is important because we're in the early days of AI actually being applied to real-world problems, so much growth may lie ahead as these AI agents consider problems and implement actions on behalf of humans.

Nvidia's early steps in the CPU space look promising. The company's stand-alone CPU is just rolling out now, and it's expected to generate $20 billion this year.

Of course, with concerns about AI spending and the general economy swirling through the market, it's possible that Nvidia stock won't soar immediately from today's levels. There might even be a pullback in AI stocks. But, in investing, timing the market is risky and nearly impossible -- and the good news is, it's unnecessary. If you buy shares of a quality company at a reasonable price and hold on for the long term, you may win big. And I believe this is the case with Nvidia right now. Even though the stock is close to its highest level ever, it's actually cheap given its long-term revenue prospects. That's why it's still a fantastic AI stock to buy and hold.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.