When trading at a price-to-earnings (P/E) ratio of 39, the recent volatility surrounding Nvidia (NASDAQ:NVDA) stock should come as little surprise, especially after enjoying such an explosive rise. For reference, the GPU chip maker has seen its market capitalisation rise by over 1,600% over the last five years.
Unfortunately, shares of this tech giant seem to be moving firmly in the wrong direction so far in 2025. Since the year kicked off, the stock’s down almost 20%. And this downward trajectory appears to have accelerated in recent weeks.
So what’s going on? And how much money could investors make if they were to invest £5,000 right now?
Trouble brewing in China
In 2022, the US government introduced a ban on Nvidia from selling its latest version of its AI-powering chips in the Chinese market. However, it seems despite these tight controls, Nvidia’s Blackwell technology has still managed to find its way into this restricted domain.
Authorities in Singapore have launched a fraud investigation into how these chips made it into China, which could land Nvidia in hot water in the weeks and months ahead. At the same time, the introduction of tariffs by the US creates a new headwind for the enterprise, with its operations in Mexico seemingly in the direct line of fire.
Currently, the full impact on the business remains unclear. But there appear to be numerous headwinds starting to creep into Nvidia’s outlook. And when trading at a premium valuation, uncertainty rarely bodes well for a stock price.
Bullish trajectory
Despite these latest developments, analysts remain quite optimistic. The average 12-month price target for Nvidia stock is currently at $175 per share. Compared to today’s trading levels, that’s a potential 53% jump between now and March 2026. If this projection proves accurate, a £5,000 investment today could grow to £7,650 by this time next year.
As exciting as this prospect sounds, there are some caveats to consider. Forecasts are notoriously inaccurate due to the large number of assumptions made by analysts. And right now, one of the biggest is the continued demand for AI accelerator chips as the tech industry expands its AI infrastructure.
Unfortunately, there are already concerns about an incoming spending slowdown in this arena. Even if this doesn’t occur, rival data centre technology firms like Arista Networks are also working on their own Nvidia-alternative solutions that might start undercutting the group’s extensive pricing power.
Time to buy?
Nvidia’s technological capabilities are quite substantial, as is its track record of innovation. This is made perfectly apparent in its latest earnings report, where revenue and profits shot up by 78% and 80% respectively, once again beating expectations for the ninth consecutive quarter.
However, even after the recent slide in valuation, Nvidia’s stock appears priced as if the spending and competitive environment won’t change. That’s despite semiconductors being a notoriously cyclical industry.
As such, I’m still sitting on the sidelines. However, should a better price emerge, Nvidia will likely become a new addition to my growth portfolio.
This post was originally published on Motley Fool
